S-4/A

As filed with the Securities and Exchange Commission on July 29, 2004

Registration No. 333-110025

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

PRE-EFFECTIVE

AMENDMENT NO. 3

to

FORM S-4

REGISTRATION STATEMENT

Under

THE SECURITIES ACT OF 1933

MONITRONICS INTERNATIONAL, INC.

(Exact Name of Registrant as Specified in its Charter)

Texas	7380	74-2719343
(State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code)	(I.R.S. employer identification no.)

12801 Stemmons Freeway Suite 821 Dallas, Texas 75234 (972) 243-7443 (Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices) Michael R. Meyers Vice President and Chief Financial Officer 12801 Stemmons Freeway Suite 821 Dallas, Texas 75234 (972) 243-7443 (Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

Christine A. Hathaway, Esq.

Vinson & Elkins L.L.P.

3700 Trammell Crow Center

2001 Ross Avenue

Dallas, Texas 75201-2975

Telephone: (214) 220-7700

Approximate date of commencement of proposed sale to the public:    As soon as practicable after the effective date of this Registration Statement

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.    ¨

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    ¨

The Registrant hereby amends this Registration Statement on such dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED JULY 29, 2004

PROSPECTUS

Offer to Exchange up to

$160,000,000 11 ³/4% Senior Subordinated Notes due 2010

that have been registered under the Securities Act of 1933

for

$160,000,000 11 ³/4% Senior Subordinated Notes due 2010

Terms of the Exchange Offer
•      We are offering to exchange up to $160,000,000 of our 11 3/4% Senior Subordinated Notes due 2010 that have been registered under the Securities Act of 1933 and are freely tradable, which we refer to herein as the “new notes,” for our outstanding 11 3/4% Senior Subordinated Notes due 2010, which we refer to herein as the “old notes.” The new notes and the old notes have substantially identical terms. •      We will exchange an equal principal amount of new notes for all outstanding old notes that you validly tender and do not validly withdraw before the exchange offer expires.	•      The exchange offer expires at 5:00 p.m., New York City time, on                     , 2004, unless extended. We do not currently intend to extend the exchange offer. •      Tenders of outstanding old notes may be withdrawn at any time prior to the expiration of the exchange offer. •      The exchange of new notes for old notes will not be a taxable event for U.S. federal income tax purposes. •      We will not receive any proceeds from the exchange offer.
Terms of the New 11¾% Senior Subordinated Notes Offered in the Exchange Offer
Maturity •      The new notes will mature on September 1, 2010. Interest •      Interest on the new notes is payable on March 1 and September 1 of each year, beginning March 1, 2004. •      Interest will accrue from August 25, 2003. Redemption •      Prior to September 1, 2007, we may redeem some or all of the new notes by paying a specified “make-whole” premium. •      On or after September 1, 2007, we may redeem some or all of the new notes at a redemption price that will decrease ratably from 108% of accreted value to 100% of accreted value on September 1, 2009, plus accrued and unpaid interest. •      In addition, on or prior to September 1, 2006, we may redeem up to 25% of the aggregate principal amount of the old notes and the new notes using the net proceeds of certain equity offerings.	Change of Control •      Upon a change of control, you may require us to repurchase all or a portion of your notes at a purchase price of 101% of their principal amount, plus accrued and unpaid interest. Ranking •      The new notes will be our unsecured senior subordinated obligations ranking equally with all of our other existing and future unsecured senior subordinated debt. •      The new notes will rank junior to all of our existing and future senior debt. As of March 31, 2004, we had $201.4 million of senior secured debt. Guarantees •      Our future subsidiaries will fully and unconditionally guarantee the new notes jointly and severally on a senior subordinated basis.

See “ Risk Factors” beginning on page 14 for a discussion of the risks of an investment in the new notes.

These securities have not been approved or disapproved by the Securities and Exchange Commission or any state securities commission nor has the Securities and Exchange Commission passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

Each broker-dealer that receives new notes for its own account pursuant to the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of such new notes. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of new notes received in exchange for old notes where such old notes were acquired as a result of market-making activities or other trading activities. We have agreed that for a period of 180 days after the expiration date of the exchange offer, we will make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. In addition, broker-dealers who acquired the old notes directly from us in the initial offering must, in the absence of an exemption, comply with the registration and prospectus delivery requirements of the Securities Act in connection with resales and cannot rely on existing staff interpretations of the Securities and Exchange Commission’s position.

The date of this prospectus is                     , 2004

TABLE OF CONTENTS

	Page
PROSPECTUS SUMMARY	1
RISK FACTORS	14
FORWARD-LOOKING STATEMENTS	21
EXCHANGE OFFER	22
USE OF PROCEEDS	33
CAPITALIZATION	34
SELECTED HISTORICAL FINANCIAL DATA	35
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	38
BUSINESS	48
MANAGEMENT	59
SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT	64
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS	67
DESCRIPTION OF INDEBTEDNESS	69
DESCRIPTION OF NEW NOTES	72
DESCRIPTION OF CAPITAL STOCK	105
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS	108
PLAN OF DISTRIBUTION	108
LEGAL MATTERS	109
EXPERTS	109
WHERE YOU CAN FIND OTHER INFORMATION	109
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS	F-1

This prospectus incorporates important business and financial information about Monitronics International, Inc. that is not included in or delivered with this prospectus. Such information is available without charge to holders of old notes upon written or oral request made to the office of the Corporate Secretary, Monitronics International, Inc., 12801 Stemmons Freeway, Suite 821, Dallas, Texas 75234 (Tel. 972-243-7443). To obtain timely delivery of any requested information, holders of old notes must make any request no later than                             , 2004, which date is five business days prior to the expiration date of the exchange offer.

i

PROSPECTUS SUMMARY

The following summary highlights information about us and the offering of the new notes contained elsewhere in this prospectus. For a more complete understanding of us and the offering of the new notes, we urge you to read this entire prospectus carefully, including the “Risk Factors” section, our financial statements and the notes to those financial statements. Throughout this prospectus, when we refer to “us,” “we,” “our,” or the “company,” we are describing Monitronics International, Inc.

The Company

We are a leading provider of security alarm monitoring services, based on gross revenue. We monitor signals arising from burglaries, fires and other events for over 425,000 subscribers under contracts that provide us with high margin, monthly recurring revenues that result in predictable and stable cash flow. We purchase monitoring contracts from our exclusive nationwide dealer network including approximately 400 dealers in more than 40 states who sell and install the security systems we monitor. Our subscribers are geographically diversified in 45 states and are primarily homeowners, whom we believe are more likely than renters to maintain long-term accounts with us. For the fiscal year ended June 30, 2003 and the nine months ended March 31, 2004, we generated revenues of $126.4 million and $111.2 million, operating income of $29.6 million and $27.0 million, net income/(loss) of $3.8 million and $(4.8) million and EBITDA of $88.8 million and $79.8 million, respectively. At March 31, 2004, we also had an accumulated deficit of $67.7 million. Although EBITDA is not a financial measure that complies with generally accepted accounting principles in the United States, we believe it is a key performance measure used in the security alarm monitoring industry and is one of the financial measures, subject to adjustments, by which our covenants are calculated under the agreements governing our debt obligations. We have provided a reconciliation of EBITDA to net income in footnote 6 of “Summary Historical Financial Data” on page 13 of this prospectus.

We believe our focused business model differentiates us from other security alarm companies. We focus on providing monitoring services to our subscribers, which we believe is a higher margin business than selling and installing security alarm systems. Consequently, we are able to grow our subscriber base without employing a national sales and installation force. We also outsource on-site technical support to our dealer network, further reducing our cost structure and infrastructure requirements. In addition, we have implemented a disciplined account acquisition program focused on balanced growth, profitability and return on investment. The core of our account acquisition process is an extensive examination of every dealer and subscriber prior to acquisition. We believe that this approach reduces the likelihood that a subscriber will terminate their contract with us, thereby maximizing retention of our subscribers and our return on investment.

The Recapitalization

On July 14, 2004, certain of our shareholders entered into a recapitalization agreement with us in which our existing preferred shareholders elected to exchange all of their shares of preferred stock, Class A common stock and warrants to purchase Class A common stock for shares of a newly created Series A preferred stock or Class A common stock based on the exchange terms negotiated amongst such shareholders. We also redeemed approximately $5.6 million of the Series C and Series C-1 preferred stock held by one of our preferred shareholders who then sold the Class A common stock it received in exchange for its remaining Series C and Series C-1 preferred stock to two new investors. We refer to the foregoing transactions as the “recapitalization.” We financed the costs of the recapitalization, including the $5.6 million redemption payment and approximately $1.0 million of fees and expenses, with borrowings under our senior credit facility.

The beneficial ownership of our capital stock and the voting interests of our shareholders based on their ownership on a pre-recapitalization and a post-recapitalization basis is shown below.

1

2

Following the recapitalization, in addition to owning approximately 45.0% of our fully-diluted equity, ABRY and its affiliates will have the right to designate four of seven members of our board of directors. As a result, following the recapitalization, ABRY will have the ability to significantly influence the outcome of matters submitted to our shareholders and directors, including the election of directors, the approval of any merger, consolidation or sale of all or substantially all our assets and the incurrence of additional indebtedness.

We were incorporated in 1994 as a Texas corporation. Our executive offices are located at 12801 Stemmons Freeway, Suite 821, Dallas, Texas 75234 and our telephone number is (972) 243-7443.

3

The Exchange Offer

On August 25, 2003, we completed a private offering of the old notes. We entered into a registration rights agreement with the initial purchasers in the private offering in which we agreed to effect this exchange offer.

Exchange Offer We are offering to exchange $160,000,000 aggregate principal amount of new notes that have been registered under the Securities Act for a like principal amount of old notes of the same tenor that noteholders properly tender and do not withdraw prior to the expiration date. The new notes may be exchanged only in integral multiples of $1,000.

Expiration Date The exchange offer will expire at 5:00 p.m. New York City time, on                     , 2004, unless we decide to extend it. We do not currently intend to extend the exchange offer.

Procedures for Tendering Old Notes To participate in the exchange offer, you must complete, sign and date the letter of transmittal, or a facsimile of the letter of transmittal, and transmit it together with all other documents required by the letter of transmittal, including the old notes that you wish to exchange, to The Bank of New York Trust Company, N.A., as exchange agent, at the address indicated on the cover page of the letter of transmittal. In the alternative, you can tender your old notes by following the procedures for book-entry transfer described in this prospectus.

If your old notes are held through The Depository Trust Company and you wish to participate in the exchange offer, you may do so through the automated tender offer program of The Depository Trust Company. If you tender under this program, you will agree to be bound by the letter of transmittal that we are providing with the prospectus as though you had signed the letter of transmittal.

If a broker, dealer, commercial bank, trust company or other nominee is the registered holder of your old notes, we urge you to contact that person promptly to tender your old notes in the exchange offer.

Guaranteed Delivery Procedures If you wish to tender your old notes and you cannot submit your required documents to the exchange agent on time, you may tender your old notes according to the guaranteed delivery procedures described in “Exchange Offer—Guaranteed Delivery Procedures.”

Withdrawal of Tenders You may withdraw your tender of old notes at any time prior to the expiration date. To withdraw, you must have delivered a written or facsimile transmission notice of withdrawal, in compliance with the requirements of Rule 14d-7 of the Securities Exchange Act of 1934, to the exchange agent at its address indicated on the cover page of the letter of transmittal before 5:00 p.m. New York City time on the expiration date of the exchange offer.

4

Acceptance of Old Notes and Delivery of New Notes If you fulfill all conditions required for proper acceptance of old notes, we will accept any and all old notes that you properly tender in the exchange offer on or before 5:00 p.m. New York City time on the expiration date. We will return any old notes that we do not accept for exchange to you without expense promptly after the expiration date. We will also deliver the new notes promptly after the expiration date.

Accrued Interest on New Notes and Old Notes The new notes will bear interest from August 25, 2003. Holders of old notes whose old notes are accepted for exchange will be deemed to have waived the right to receive any payment in respect of interest on such old notes and will instead receive interest payable on the new notes issued in the exchange. Interest on each new note will accrue from the last interest payment date in which interest was paid on the old note surrendered in exchange therefor or, if no interest has been paid on such old note, from the date of issuance of the old notes.

Resale We believe that the new notes issued pursuant to the exchange offer may be offered for resale, resold and otherwise transferred by you (unless you are an “affiliate” of ours within the meaning of Rule 405 under the Securities Act of 1933) without compliance with the registration and prospectus delivery provisions of the Securities Act of 1933, so long as you are acquiring the new notes in the ordinary course of your business and you have not engaged in, do not intend to engage in, and have no arrangement or understanding with any person to participate in, a distribution of the new notes.

Each participating broker-dealer that receives new notes for its own account under the exchange offer in exchange for old notes that were acquired by the broker-dealer as a result of market-making or other trading activity must acknowledge that it will deliver a prospectus in connection with any resale of the new notes.

Any holder of old notes who:

• is our affiliate,

• does not acquire new notes in the ordinary course of its business, or

• exchanges old notes in the exchange offer with the intention to participate, or for the purpose of participating, in a distribution of new notes must, in the absence of an exemption, comply with the registration and prospectus delivery requirements of the Securities Act of 1933 in connection with the resale of the new notes.

Conditions to the Exchange Offer We are not required to accept for exchange or to issue new notes in exchange for any old notes and we may terminate or amend the exchange offer if any of the following events occur prior to the expiration of the exchange offer:

5

• the exchange offer violates any applicable law or applicable interpretation of the staff of the Securities and Exchange Commission;

• an action or proceeding shall have been instituted or threatened in any court or by any governmental agency that might materially impair our or any subsidiary guarantor’s ability to proceed with the exchange offer;

• we do not receive all governmental approvals that we believe are necessary to consummate the exchange offer; or

• there has been proposed, adopted, or enacted any law, statute, rule or regulation that, in our reasonable judgment, would materially impair our ability to consummate the exchange offer.

All material conditions to the exchange offer must be satisfied or waived prior to the expiration date of the exchange offer. The exchange offer is not conditioned on the tender of any minimum principal amount of old notes.

Use of Proceeds The issuance of the new notes will not provide us with any new proceeds. We are making this exchange offer solely to satisfy our obligations under our registration rights agreement. We used the net proceeds from the issuance of the old notes together with borrowings under our new credit facility entered into concurrently with the issuance of the old notes to:

• repay $298.6 million outstanding under our previous credit facility;

• repay in full $12.0 million in aggregate principal amount of our 12% senior subordinated notes due June 30, 2007; and

• repay $20.5 million in aggregate principal amount of our 14.5% subordinated notes due March 1, 2010 at a repurchase price of approximately $23.2 million.

The remainder of the net proceeds, consisting of approximately $0.3 million, was used for general corporate purposes.

Consequences of Failure to Exchange Old Notes If you do not exchange your old notes in this exchange offer, you will no longer be able to require us to register the old notes under the Securities Act of 1933 except in the limited circumstances provided under our registration rights agreement. In addition, you will not be able to resell, offer to resell or otherwise transfer the old notes unless we have registered the old notes under the Securities Act of 1933, or unless you resell, offer to resell or otherwise transfer them under an exemption from the registration requirements of, or in a transaction not subject to, the Securities Act of 1933.

United States Federal Income Tax Considerations The exchange of new notes for old notes in the exchange offer will not be a taxable event for U.S. federal income tax purposes.

6

Exchange Agent We have appointed The Bank of New York Trust Company, N.A. as exchange agent for the exchange offer. You should direct questions and requests for assistance, requests for additional copies of this prospectus or the letter of transmittal and requests for the notice of guaranteed delivery to the exchange agent by telephone at (800) 548-5075.

7

TERMS OF NEW NOTES

The new notes will be identical to the old notes except that the new notes are registered under the Securities Act and will not have restrictions on transfer, registration rights or provisions for additional interest. The new notes will evidence the same debt as the old notes, and the same indenture will govern the new notes and the old notes.

The following summary contains basic information about the new notes and is not intended to be complete. It does not contain all the information that is important to you. For a more complete understanding of the new notes, please refer to the section of this prospectus entitled “Description of New Notes.”

Issuer Monitronics International, Inc.

Securities Offered $160 million aggregate principal amount of senior subordinated notes due 2010.

Maturity September 1, 2010.

Interest Annual rate: 11 ³/4%. Payment frequency: every six months on March 1 and September 1. First payment: March 1, 2004.

Ranking The new notes will be our unsecured senior subordinated obligations. Accordingly, they will rank:

• behind all of our existing and future senior secured and unsecured debt, including our new senior secured credit facility;

• equally with any of our future senior subordinated debt; and

• senior to any of our debt that expressly provides that it is subordinated to the new notes.

At March 31, 2004, we had $381.2 million of indebtedness, of which $201.4 million was senior secured debt and $20.7 million was subordinated to the new notes.

Guarantees The new notes will be fully and unconditionally guaranteed, on an unsecured senior subordinated basis, jointly and severally, by our future restricted subsidiaries organized under United States federal or state law that we create or acquire after the issue date. Accordingly, the guarantees will rank behind all future senior debt of the guarantors. Any U.S. restricted subsidiaries that we create or acquire after the issue date will be subject to the restrictive covenants contained in the indenture. We currently have no subsidiaries.

Optional Make-Whole Redemption Like the old notes, we may, at our option, redeem some or all of the new notes at any time prior to September 1, 2007 by paying a redemption price equal to 100% of the principal amount of the new notes to be rendered plus the greater of (1) 1.0% of the principal amount of the new notes to be redeemed and (2) the excess of the present value of 108% of the accreted value of the new notes plus

8

scheduled interest payments on the new notes through September 1, 2007 (discounted to the redemption date at the adjusted treasury rate plus 50 basis points) over the principal amount of the new notes, plus accrued and unpaid interest to the redemption date. The premium that we will pay to redeem the notes prior to September 1, 2007 is referred to as a “make-whole” premium as it is intended to make investors essentially “whole” if we elect to redeem the notes early by using a redemption price based on the present value of future principal and interest payments. The “make-whole” premium is defined as the Applicable Premium in the indenture.

Optional Redemption On or after September 1, 2007, we may redeem all or a portion of the new notes at our option at the following redemption prices, plus accrued and unpaid interest to the redemption date. The following prices are for new notes redeemed during the 12-month period commencing on September 1 of the years set forth below, and are expressed as percentages of principal amount:

Year	Percentage
2007	108.000	%
2008	102.938	%
2009	100.000	%

Equity Offering Optional Redemption On or before September 1, 2006, we may redeem up to 25% of the aggregate principal amount of the old notes and the new notes (including any additional notes issued under the indenture) with the net cash proceeds from certain equity offerings at a redemption price of 111.750% of their principal amount plus accrued and unpaid interest. However, we may only make such redemptions if at least 75% of the original aggregate principal amount of old notes and the new notes (including any additional notes issued under the indenture) remains outstanding after such redemption.

Change of Control If we experience a change of control, we must offer to purchase the new notes at 101% of their principal amount, plus accrued and unpaid interest, if any, to the date of purchase. The occurrence of a change of control will result in a default under our credit agreement and entitle the lenders to require repayment in full of our borrowings under the credit agreement. In addition, the subordination provisions of the indenture will prevent our purchase of the notes upon a change of control absent the consent of our lenders under the credit agreement or payment of all amounts outstanding under our credit agreement. We may not have sufficient funds available at the time of the change of control to effect the purchase of the notes and to make repayments under our credit agreement.

In addition, we may in the future enter into transactions, including acquisitions, refinancings or other recapitalizations or high leveraged transactions that would not constitute a change of control but that could increase the amount of indebtedness outstanding or otherwise affect our capital structure or credit ratings or adversely affect the holders of the notes.

9

The indenture does not contain provisions that permit the holders of the old notes or the new notes to require us to purchase or redeem the notes in the event of these transactions.

Covenants The indenture governing the new notes will contain covenants that limit our ability and the ability of our future restricted subsidiaries to, among other things:

• incur additional debt or issue stock which by its terms matures or is redeemable prior to the maturity of the notes unless our ratio of indebtedness to consolidated cash flow (each as defined in the indenture) exceeds 4.5 to 1.0;

• pay dividends on or redeem or repurchase stock;

• make investments;

• create liens;

• sell stock in our restricted subsidiaries;

• restrict dividends or other payments from subsidiaries;

• enter into transactions with affiliates; and

• sell assets or merge with other companies.

These covenants contain important exceptions. For more details, see the section “Description of New Notes.”

Transfer Restrictions; Absence of a Public Market for the New Notes The new notes generally will be freely transferable, but will also be new securities for which there will not be a market. There can be no assurance as to the development or liquidity of any market for trading. We do not intend to apply for a listing of the new notes on any securities exchange or any automated dealer quotation system.

10

SUMMARY HISTORICAL FINANCIAL DATA

The following summary historical financial data for each of the five fiscal years in the period ended June 30, 2003 have been derived from our financial statements, which have been audited by Ernst & Young LLP, independent auditors. The results of operations and other operating and financial data below as of March 31, 2004 and for the nine months ended March 31, 2003 and 2004 are derived from our unaudited financial statements which reflect only normal recurring adjustments which, in the opinion of our management, are necessary for the fair presentation of this information. You should not expect the results of operations and other operating and financial data or other operating data of interim periods to be an indication of results for a full year. The following financial information should be read in conjunction with our financial statements, and the related notes to those statements, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.

	Fiscal Year Ended June 30,															Nine Months Ended March 31,
	1999(1)			2000			2001			2002			2003			2003			2004
	Restated(2)			Restated(2)			Restated(2)			Restated(2)			Restated(2)			Restated(2)
							(dollars in thousands)									(unaudited)
Results of Operations Data:
Revenues	$	49,837		$	82,046		$	100,198		$	111,339		$	126,406		$	92,606		$	111,248
Cost of services		6,371			10,472			11,819			13,522			14,592			10,993			12,243
Gross profit		43,466			71,574			88,379			97,817			111,814			81,613			99,005
Sales, general and administrative		11,045			15,660			17,979			20,570			23,014			16,738			19,205
Depreciation		668			1,297			1,634			1,923			2,067			1,565			1,620
Amortization(3)		19,007			35,161			43,302			49,295			57,162			41,857			51,167
Operating income		12,746			19,456			25,464			26,029			29,571			21,453			27,013
Interest expense		11,757			22,064			27,951			20,941			23,268			17,503			25,626
Loss on debt refinancing		—			—			—			—			—			—			8,828
Other expense		—			—			—			504			—			—			—
Income (loss) before income taxes		989			(2,608	)		(2,487	)		4,584			6,303			3,950			(7,441	)
Provision (benefit) for income taxes		382			(959	)		(908	)		1,795			2,543			1,526			(2,657	)
Net income (loss)	$	607		$	(1,649	)	$	(1,579	)	$	2,789		$	3,760		$	2,424		$	(4,784	)
Other Operating and Financial Data:
Subscriber accounts owned at period end(4)		213,397			265,816			304,360			335,390			389,905			372,715			425,291
Subscriber accounts purchased(5)		73,744			86,368			83,816			75,097			99,476			91,794			100,425
Purchases of subscriber accounts(4)(5)	$	72,459		$	93,290		$	92,859		$	79,276		$	106,521		$	75,387		$	81,882
Cash flow from operating activities		16,839			27,694			37,103			48,263			60,029			43,898			58,399
Cash flow from financing activities		128,211			66,826			58,531			33,404			47,988			32,300			25,647
Cash flow used in investing activities		(144,724	)		(94,938	)		(95,683	)		(81,654	)		(107,700	)		(76,119	)		(82,881	)
EBITDA(6)		32,421			55,914			70,400			76,743			88,800			64,875			79,800
Capital expenditures		2,265			1,648			2,824			2,378			1,179			732			999
Ratio of earnings to fixed charges(7)		1.09x			—			—			1.22x			1.28x			1.23x			—
Ratio of earnings to combined fixed charges and preferred stock dividends(8)		—			—			—			—			—			—			—

11

	As of March 31, 2004
	(dollars in thousands)
	(unaudited)
Balance Sheet Data:
Cash and cash equivalents	$	1,499
Working capital (deficit)		(19,660	)
Total assets		503,562
Total debt		381,209
Redeemable preferred stock, including accrued dividends		170,500
Total shareholders’ net capital deficiency		(76,203	)

(1) Our results of operations for fiscal 1999 include the acquisition of approximately 60,000 subscriber accounts from Dealer’s Monitoring Acceptance Corporation (“DMAC”) on March 9, 1999.

(2) We restated our financial statements for the fiscal years ended June 30, 1999, 2000, 2001, 2002, 2003 and the nine months ended March 31, 2003 to properly account for the change in amortization method from a 10-year straight-line method to a 10-year 135% declining balance method and record deferred revenue related to billings to our subscribers as more fully described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Restatement of Prior Financial Statements.” The restatements reduced previously reported revenues and net income and increased amortization for these periods as follows:

	1999								2000
	Previously Reported		Adjustment			Adjusted Balance			Previously Reported		Adjustment			Adjusted Balance
	(dollars in thousands)								(dollars in thousands)
Revenue	$	50,491	$	(654	)	$	49,837		$	82,831	$	(785	)	$	82,046
Amortization	$	15,544	$	3,463		$	19,007		$	29,112	$	6,049		$	35,161
Net Income (Loss)	$	3,196	$	(2,589	)	$	607		$	2,653	$	(4,302	)	$	(1,649	)
	2001								2002
	Previously Reported		Adjustment			Adjusted Balance			Previously Reported		Adjustment			Adjusted Balance
	(dollars in thousands)								(dollars in thousands)
Revenue	$	100,799	$	(601	)	$	100,198		$	111,881	$	(542	)	$	111,339
Amortization	$	38,423	$	4,879		$	43,302		$	45,968	$	3,327		$	49,295
Net Income (Loss)	$	1,872	$	(3,451	)	$	(1,579	)	$	5,223	$	(2,434	)	$	2,789
	2003								Nine Months Ended March 31, 2003
	Previously Reported		Adjustment			Adjusted Balance			Previously Reported		Adjustment			Adjusted Balance
	(dollars in thousands)								(dollars in thousands)
Revenue	$	126,406	$	—		$	126,406		$	93,106	$	(500	)	$	92,606
Amortization	$	54,885	$	2,277		$	57,162		$	40,176	$	1,681		$	41,857
Net Income	$	5,197	$	(1,437	)	$	3,760		$	3,789	$	(1,365	)	$	2,424

(3) Primarily represents the amortization of subscriber accounts and goodwill. We capitalize all direct external costs associated with the purchase of subscriber accounts and amortize them over ten years on a straight line basis. In addition, as part of previous acquisitions including DMAC, we began amortizing goodwill. Effective July 1, 2001, with the adoption of Statement of Financial Accounting Standards No. 142, we no longer amortize goodwill. For fiscal years 1999, 2000 and 2001, $46,905, $228,225 and $773,000, respectively, of our amortization expense related to the amortization of goodwill.

(4) Does not include non-owned accounts for which we provide third-party contract monitoring services to independent dealers.

(5) Purchases of subscriber accounts in fiscal 1999 excludes our acquisition of approximately 60,000 subscriber accounts from DMAC.

12

(6) EBITDA represents earnings before interest, taxes, depreciation and amortization (including the amortization of subscriber accounts). EBITDA does not represent cash flow from operations as defined by generally accepted accounting principles, should not be construed as an alternative to net income and is indicative neither of our operating performance nor of cash flows available to fund all of our cash needs. It is, however, a measurement we believe is useful to our investors to evaluate our operating performance. EBITDA is also a measure that we believe is customarily used by financial analysts to evaluate the financial performance of companies in the security alarm monitoring industry and is one of the financial measures, subject to adjustments, by which our covenants are calculated under the agreements governing our debt obligations. Set forth below is the calculation of EBITDA and the reconciliation of EBITDA to net income:

	Fiscal Year Ended June 30,												Nine Months Ended March 31,
	1999		2000			2001			2002		2003		2003		2004
	Restated(2)		Restated(2)			Restated(2)			Restated(2)		Restated(2)		Restated(2)
						(dollars in thousands)							(unaudited)
Net income (loss)	$	607	$	(1,649	)	$	(1,579	)	$	2,789	$	3,760	$	2,424	$	(4,784	)
Interest expense		11,757		22,064			27,951			20,941		23,268		17,503		25,626
Loss on debt refinancing		—		—			—			—		—		—		8,828
Provision (benefit) for income taxes		382		(959	)		(908	)		1,795		2,543		1,526		(2,657	)
Depreciation		668		1,297			1,634			1,923		2,067		1,565		1,620
Amortization		19,007		35,161			43,302			49,295		57,162		41,857		51,167
EBITDA	$	32,421	$	55,914		$	70,400		$	76,743	$	88,800	$	64,875	$	79,800

(7) For purposes of computing the ratio of earnings to fixed charges, earnings consist of income before income taxes for such period plus fixed charges deducted in calculating income before income taxes for such period. Fixed charges consist of interest incurred, amortization of deferred financing costs, and an amount representing the interest factor included in rental expense. Our earnings for the years ended June 30, 2000, 2001 and the nine months ended March 31, 2004 were insufficient to cover fixed charges by $2.6 million, $2.5 million and $7.4 million, respectively. On a pro forma basis after giving effect to our August 2003 refinancing, for the year ended June 30, 2003 and the nine months ended March 31, 2004, our earnings would have been insufficient to cover fixed charges by $6.6 million and $9.5 million, respectively.

(8) For purposes of computing the ratio of earnings to combined fixed charges and preferred stock dividends, earnings consist of income before income taxes for such period plus fixed charges deducted in calculating income before income taxes for such period. Fixed charges consist of interest incurred, amortization of deferred financing costs, accrued dividends, amortization of accretion expenses, an amount representing the interest factor included in rental expense and preferred stock dividends consisting of dividends declared or accrued on our preferred stock and the accretion of the preferred stock discount. Our earnings for fiscal years 1999, 2000, 2001, 2002, 2003 and for the nine months ended March 31, 2003 and 2004 were insufficient to cover combined fixed charges and preferred stock dividends by $1.3 million, $5.7 million, $7.2 million, $20.3 million, $24.9 million, $18.3 million and $23.0 million, respectively.

13

RISK FACTORS

An investment in the new notes is subject to a number of risks. You should carefully consider the following factors, as well as the more detailed descriptions referred to in this prospectus and the other matters described in this prospectus before making an investment in the new notes.

Risks Relating to the New Notes

Our substantial indebtedness could adversely affect our financial health and prevent us from fulfilling our obligations under the new notes.

We have now and will continue to have a significant amount of indebtedness. At March 31, 2004, our total indebtedness was $381.2 million, of which $201.4 million was senior secured debt.

Our substantial indebtedness could have important consequences to you. For example, it could:

• make it more difficult for us to satisfy our obligations with respect to the new notes;

• increase our vulnerability to general adverse economic and industry conditions;

• limit our ability to fund future subscriber account purchases, working capital, capital expenditures and other general corporate requirements;

• require a substantial portion of our cash flow from operations for debt payments;

• limit our flexibility to plan for, or react to, changes in our business and the industry in which we operate;

• place us at a competitive disadvantage compared to our competitors that have less debt; and

• limit our ability to borrow additional funds.

Any of the above listed factors could materially adversely affect us.

Despite our current levels of indebtedness, we still may be able to incur substantially more debt. This could further increase the risks described above.

We may be able to incur substantial additional indebtedness in the future. Our organizational documents do not contain any limitations on the amount or percentage of indebtedness that we may incur. The terms of the indenture relating to the new notes permit us to incur additional indebtedness. At March 31, 2004, our credit facility included a $145 million revolving credit facility, of which $117.7 million was undrawn at March 31, 2004 and available for future borrowing subject to the satisfaction of applicable covenants. If new debt is added to our current debt levels, the related risks that we now face could intensify.

We have significant intangible assets, which may not be adequate to satisfy our obligations in the event of a liquidation.

If we default on our debt or are liquidated, we cannot assure you that the value of our assets will be sufficient to satisfy our obligations, including our obligations with respect to the new notes. We have a significant amount of intangible assets. At March 31, 2004, 98% of our assets were intangible assets, comprising primarily subscriber accounts, as well as goodwill and deferred tax assets. The value of our subscriber accounts will depend significantly on the success of our business. At March 31, 2004, we had a net tangible book value deficit of $568.1 million.

14

To service our indebtedness, we will require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control.

Our ability to satisfy our obligations under our indebtedness, including the new notes, and to fund planned capital expenditures and acquisitions of new subscriber accounts will depend on our ability to generate cash in the future. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. We cannot assure you that our business will generate sufficient cash flow from operations, that we will realize operating improvements on schedule or that future borrowings will be available to us under our credit facility in an amount sufficient to enable us to pay our indebtedness, including the new notes, or to fund our other liquidity needs.

We may need to refinance all or a portion of our indebtedness, including the new notes, on or before maturity.

Our indebtedness under our credit facility matures prior to the new notes. If we do not have sufficient funds to repay amounts due under our credit facility or other indebtedness, we may be required to refinance all or a portion of our debt, including the new notes. If we are required to refinance, the new terms governing our debt may not be similar to the terms governing such debt currently and may be more costly and difficult for us to satisfy. If we are required to obtain additional financing, the increase in our indebtedness would require us to dedicate additional cash flow to service our debt which would reduce funds available for other business purposes. In addition, we may not be able to take any of these actions or such actions may be prohibited under the terms of our various debt instruments, including the indenture governing the new notes. If we are unable to take any of the foregoing actions, we could continue to be unable to generate sufficient cash flow to service our debt.

Your right to receive payments on the new notes is junior to our existing senior indebtedness and possibly most of our future borrowings.

The new notes will rank behind all of our existing indebtedness other than $20.7 million of subordinated debt and all of our future borrowings, except any future indebtedness that expressly provides that it ranks equal with, or is subordinated in right of payment to, the new notes. As a result, upon any distribution to our creditors in a bankruptcy or similar proceeding, the holders of our senior debt will be entitled to be paid in full in cash before any payment may be made with respect to the new notes.

In addition, all payments on the new notes will be blocked in the event of a payment default under our credit facility or under other senior debt in a principal amount in excess of $20 million for which we have granted the holders a blockage right. Payments on the new notes may also be prohibited for up to 179 days each year in the event of certain non-payment defaults on these classes of senior debt.

In the event of a bankruptcy, liquidation or reorganization or similar proceeding, holders of the new notes will participate with all other holders of our subordinated indebtedness in the assets remaining after we have paid all of our senior debt. In any of these cases, we may not have sufficient funds to pay all of our creditors; therefore, holders of the new notes may receive ratably less than trade creditors. At March 31, 2004, our senior secured debt was $201.4 million and we would have had $117.7 million of availability under the revolving credit facility portion of our credit facility subject to the satisfaction of applicable covenants. If we create or acquire any subsidiaries, we may be required to have such subsidiaries guarantee the new notes; however, any such guarantees will be subordinated to senior debt of the guarantors to the same extent that the new notes are subordinated to senior debt.

Our credit facility, the indenture and our existing indebtedness impose many restrictions on us.

The agreements governing our indebtedness restrict our ability to, among other things:

• incur additional indebtedness;

• pay dividends and make distributions;

15

• issue common and preferred stock of any future subsidiaries;

• make certain investments;

• repurchase stock;

• create liens;

• enter into transactions with affiliates;

• enter into sale and leaseback transactions;

• merge or consolidate; and

• transfer and sell assets.

In addition, we must comply with certain financial covenants under our credit facility and our existing indebtedness, including those that relate to capital expenditure limits, maximum total debt to EBITDA, maximum total senior liabilities to EBITDA, senior debt interest coverage and fixed charge coverage. If we cannot comply with such financial covenants, we may not be able to borrow under the credit facility. In addition, failure to comply with the restrictions contained in the credit facility or our existing indebtedness could lead to an event of default, which could result in an acceleration of indebtedness. Such an acceleration would also constitute an event of default under the indenture governing the new notes. See “Description of Indebtedness.”

We may not have the ability to raise the funds necessary to finance the change of control offer required by the indenture governing the new notes.

Upon the occurrence of certain change of control events, we will be required to offer to repurchase all outstanding new notes. However, it is possible that we will not have sufficient funds at the time of the change of control to make the required repurchase of new notes or that restrictions in our credit facility will not allow these repurchases. The occurrence of a change of control under the indenture will result in an event of default under our credit facility and our lenders will have the right to require repayment of the borrowings thereunder in full. Our obligations under our credit facility will represent obligations senior in right of payment to the notes. Consequently, the subordination provisions of the indenture will have the effect of precluding our purchase of the notes in the event of a change of control, absent consent of the lenders under our credit facility or repayment of all amounts outstanding thereunder (although our failure to comply with our obligations in the event of a change of control will constitute a default under the notes). We cannot assure you that we will have adequate resources to repay or refinance all indebtedness owing under our credit facility or to fund the purchase of any notes upon a change of control.

In addition, we may in the future enter into transactions, including acquisitions, refinancings or other recapitalizations or highly leveraged transactions that would not constitute a change of control but that could increase the amount of indebtedness outstanding or otherwise affect our capital structure or credit ratings or adversely affect the holders of the notes.

Federal and state statutes allow courts, under specific circumstances, to void guarantees, subordinate claims in respect of the new notes and require holders of the new notes to return payments received from guarantors.

We currently have no subsidiaries. However, any future domestic restricted subsidiaries that we form or acquire will be required to guarantee the new notes on a senior subordinated basis. Under the federal bankruptcy laws and comparable provisions of state fraudulent transfer laws, a guarantee could be voided, or claims in respect of a guarantee could be subordinated to all other debts of that guarantor, if, among other things, the guarantor, at the time it incurred the indebtedness evidenced by its guarantee:

• received less than reasonably equivalent value or fair consideration for the incurrence of the guarantee;

• was insolvent or rendered insolvent by reason of the incurrence;

16

• was engaged in a business or transaction for which the guarantor’s remaining assets constituted unreasonably small capital; or

• intended to incur, or believed that it would incur, debts beyond its ability to pay the debts as they mature.

In addition, any payment by that guarantor pursuant to its guarantee could be voided and required to be returned to the guarantor or to a fund for the benefit of the creditors of the guarantor.

• The measures of insolvency for purposes of these fraudulent transfer laws will vary depending upon the law applied in any proceeding to determine whether a fraudulent transfer has occurred. Generally, however, a guarantor would be considered insolvent if:

• the sum of its debts, including contingent liabilities, was greater than the fair saleable value of all of its assets;

• the present fair saleable value of its assets was less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature; or

• it could not pay its debts as they become due.

If you do not properly tender your old notes, you will continue to hold unregistered old notes and your ability to transfer old notes will be adversely affected.

We will only issue new notes in exchange for old notes that you timely and properly tender. Therefore, you should allow sufficient time to ensure timely tender of the old notes and carefully follow the instructions on how to tender your old notes. Neither we nor the exchange agent are required to tell you of any defects or irregularities with respect to your tender of the old notes.

If you do not exchange your old notes for the new notes pursuant to the exchange offer, the old notes you hold will continue to be subject to the existing transfer restrictions. In general, you may not offer or sell the old notes except under an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. We do not plan to register old notes under the Securities Act unless our registration rights agreement with the initial purchasers of the old notes requires us to do so. Further, if you continue to hold any old notes after the exchange offer is consummated, you may not be able to sell the old notes because there will be fewer old notes outstanding.

If an active trading market does not develop for the new notes, you may be unable to sell the new notes or to sell the new notes at a price that you deem sufficient.

The new notes will be new securities for which there currently is no established trading market. Although we will register the new notes under the Securities Act, we do not intend to apply for listing of the new notes on any securities exchange or for quotation of the new notes in any automated dealer quotation system. In addition, although the initial purchasers of the old notes have informed us that they intend to make a market in the new notes after the exchange offer, the initial purchasers may stop making a market at any time. Finally, if a large number of holders of old notes do not tender old notes or tender old notes improperly, the limited amount of new notes that would be issued and outstanding after we consummate the exchange offer could adversely affect the development of a market for these new notes.

Risks Relating to Our Business

Attrition of subscriber accounts could materially adversely affect our operations.

We experience attrition of subscriber accounts as a result of several factors, including:

• relocation of subscribers;

• adverse financial and economic conditions; and

• competition from other alarm monitoring companies.

17

In addition, we may lose subscriber accounts if we do not service those accounts adequately or do not successfully assimilate new subscriber accounts into our operations. A significant increase in attrition of subscriber accounts could have a material adverse effect on us.

We may be unable to manage our growth effectively.

A principal element of our business strategy is to grow through the acquisition of subscriber accounts purchased through our authorized dealer program. This expansion has placed and will continue to place substantial demands on our management and operational resources, including our information systems. Our future operating results will depend in large part on our ability to grow and manage this growth effectively. We experience loss of dealers from our dealer program due to various factors, such as dealers becoming inactive or discontinuing their electronic security business, non-renewal of our dealer contracts and competition from other alarm monitoring companies. If we experience a significant loss of dealers from our dealer program or if we are unable to replace or recruit dealers in accordance with our business plans, our future operating results may be adversely affected.

We face risks in acquiring and integrating subscriber accounts.

Acquisitions of subscriber accounts involve a number of special risks, including the possibility of unanticipated problems that were not discovered prior to the acquisition and account attrition. We face competition from other alarm monitoring companies, including companies that have more capital than we have and that may offer higher prices and more favorable terms to dealers for subscriber accounts purchased, or lower prices for monitoring services provided. This competition could reduce the acquisition opportunities available to us, thus slowing our rate of growth, and/or increase the price we pay for such account acquisitions, thus reducing our return on investment. We cannot assure you that we will be able to purchase subscriber accounts on favorable terms in the future.

The purchase price we pay for a subscriber account is affected by the monthly recurring revenue generated by that account as well as several other factors, including our prior experience with accounts purchased from the dealer, the geographic location of the account, the number of accounts purchased and the type of security equipment used by the subscriber. In purchasing accounts, we have relied on management’s knowledge of the industry, due diligence procedures and representations and warranties of the dealers. We cannot assure you that in all instances the representations and warranties made by the dealers are true and complete or, if the representations and warranties are inaccurate, that we will be able to recover damages from the dealers in an amount sufficient to fully compensate us for any resulting losses. We expect that future account acquisitions will present the same risks to us as our prior account acquisitions.

We depend on our relationships with alarm system manufacturers and suppliers. If we are not able to maintain or renew these strategic alliances, or enter into new alliances, we may be unable to fully implement our growth strategy.

We currently have agreements with certain alarm system manufacturers and suppliers of hardware to offer purchase discounts to our dealers. These relationships:

• provide important introductions to prospective dealers, which helps us in our dealer recruiting process;

• provide an additional source of prospective subscriber accounts; and

• enhance our existing dealer relationships.

We may not be able to maintain or renew our existing strategic alliances on terms and conditions favorable to us or enter into alliances with additional manufacturers and suppliers. If we are unable to maintain or renew our existing strategic alliances or enter into new alliances, we may be unable to fully implement our growth strategy.

18

We may be unable to obtain additional funds to grow our business.

Historically, we have used a combination of proceeds from issuances of preferred stock, borrowings under our old credit facility, issuances of senior subordinated and subordinated notes and cash flow from operations to fund our investing activities. We intend to continue to pursue growth through the acquisition of subscriber accounts through our authorized dealer program. To continue our growth strategy, we will be required to make additional drawdowns under our credit facility or seek additional financing through new loans or from the possible sale of additional securities in the future, which may lead to higher leverage. Any inability we have to obtain funding through external financing is likely to adversely affect our ability to continue or accelerate our subscriber account acquisition activities. We cannot assure you that we will be able to obtain external funding on attractive terms or at all.

“False alarm” ordinances could adversely affect our operations.

Significant concern has arisen in certain municipalities about the high incidence of false alarms. This concern could cause a decrease in the likelihood or timeliness of police response to alarm activations and thereby decrease the propensity of consumers to purchase or maintain alarm monitoring services.

An increasing number of local governmental authorities have considered or adopted various measures aimed at reducing the number of false alarms. Such measures could include:

• subjecting alarm monitoring companies to fines or penalties for transmitting false alarms;

• imposing fines on alarm subscribers for false alarms;

• imposing limitations on the number of times the police will respond to alarms at a particular location after a specified number of false alarms; and

• requiring further verification of an alarm signal, such as a visual verification, before the police will respond.

Enactment of these measures could adversely affect our future business and operations. For example, seven cities or metropolitan areas have implemented verified response ordinances for residential and commercial burglar alarms. A verified response policy means that police officers generally do not respond to an alarm until someone else (e.g., the resident, a neighbor or a security guard) first verifies that it is valid. Some alarm monitoring companies operating in these areas hire security guards or use third-party guard firms to verify an alarm. If we need to hire security guards or use third-party guard firms, it could have a material adverse effect on our margins. Although we have less than 10,000 subscribers in these areas, a more widespread adoption of such a policy or similar policies in other cities or municipalities could adversely affect our business.

Future government regulations could adversely affect our operations.

Our operations are subject to a variety of laws, regulations and licensing requirements of federal, state and local authorities. In certain jurisdictions, we are required to obtain licenses or permits, to comply with standards governing monitoring station employee selection and training and to meet certain standards in the conduct of our business. The loss of these licenses in jurisdictions where we have significant business, or the imposition of conditions to the granting or retention of these licenses, could have a material adverse effect on us.

Risks of liability from our operations are significant.

The nature of the services we provide potentially exposes us to greater risks of liability for employee acts or omissions or system failure than may be inherent in other businesses. Substantially all of our alarm monitoring contracts contain provisions limiting our liability to subscribers and dealers in an attempt to reduce this risk.

19

However, in the event of litigation with respect to these matters, we cannot assure you that these limitations will be enforced, and the costs of such litigation could have a material adverse effect on us. Certain of our insurance policies and the laws of some states may limit or prohibit insurance coverage for punitive or certain other types of damages or liability arising from gross negligence.

The high level of competition in our industry could adversely affect our business.

The security alarm monitoring industry is highly competitive and highly fragmented. We compete with several companies that have account acquisition and loan programs for independent dealers and some of those competitors are larger than we are and have more capital than we do. Some of the major firms we compete against include ADT Operations Inc., a subsidiary of Tyco International Ltd.; Protection One, Inc.; Brinks Home Security Inc., a subsidiary of The Brinks Company; and Honeywell Security, a division of Honeywell, Inc. Increased competition from other alarm monitoring companies could require us to increase the purchase price we pay for subscriber accounts, decrease the monitoring fees we charge our subscribers and take other measures that could reduce our margins. These increases, decreases and other measures could have a material adverse effect on us.

The interests of our significant shareholders may not be aligned with the interests of the holders of the new notes.

Following our July 2004 recapitalization, ABRY and its affiliates beneficially own approximately 45.0% of our fully-diluted equity, and they have the right to designate a majority of our board of directors. As a result, ABRY currently has the ability to significantly influence the outcome of matters submitted to our shareholders and directors, including the election of directors, the approval of any merger, consolidation or sale of all or substantially all of our assets and the incurrence of additional indebtedness. Certain decisions concerning our operations or financial structure may present conflicts of interest between the holders of our equity and the holders of the new notes. For example, equity investors may have an interest in pursuing acquisitions, divestitures, financings or other transactions that in their judgment could enhance their equity interest, even though such transactions might involve risk to the holders of the new notes.

A loss of one of our executive officers could adversely affect us.

The success of our business is largely dependent upon the active participation of our executive officers, including James R. Hull, our founder and chief executive officer, Michael R. Meyers, our chief financial officer, and Robert N. Sherman, our vice president-operations, who possess significant expertise and knowledge of our business and markets, including the implementation of our growth strategy. Any loss or interruption of the services of these individuals could significantly reduce our ability to effectively manage our operations and implement our growth strategy because we cannot assure you that we would be able to find appropriate replacements for these individuals on a timely basis should the need arise.

We could experience system failure as a result of a catastrophic event or natural disaster that could harm our business and reputation.

Our Underwriters Laboratories (“UL”) listed central monitoring facility is housed in three buildings that are all within a very close proximity to one another. Although our central monitoring facility has back-up computer and power systems, if there is a catastrophic event or natural disaster affecting all three buildings comprising the central monitoring facility, the service that we provide our subscribers would be interrupted until such time as we were able to migrate our operations to another facility.

20

FORWARD-LOOKING STATEMENTS

All statements other than statements of historical facts included in this prospectus, including without limitation, statements under the captions “Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” and located elsewhere in this prospectus regarding the prospects of our industry and our prospects, plans, financial position and business strategy, may constitute forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “plan,” “foresee,” “believe” or “continue” or the negatives of these terms or variations of them or similar terminology. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we can give no assurance that these expectations will prove to have been correct. Important factors that could cause actual results to differ materially from our expectations are disclosed in this prospectus, including in conjunction with the forward-looking statements included in this prospectus and under “Risk Factors.” These forward-looking statements speak only as of the date of this prospectus. Factors, risks and uncertainties that could cause actual outcomes and results to be materially different from those projected include, among others, the following:

• our high degree of leverage;

• our anticipated growth strategies;

• anticipated trends and conditions in our business, including trends in the market;

• our ability to acquire and integrate additional accounts;

• our expected rate of subscriber attrition;

• our ability to continue to control costs and maintain quality;

• our ability to compete;

• the impact of “false alarm” ordinances on our results of operations;

• the expectation that we will realize the benefit of our deferred tax assets; and

• our ability to obtain additional funds to grow our business.

We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. They can be affected by inaccurate assumptions we might make or by known or unknown risks, uncertainties and assumptions, including the risks, uncertainties and assumptions described in “Risk Factors.” In light of these risks, uncertainties and assumptions, the forward-looking statements in this prospectus may not occur and actual results could differ materially from those anticipated or implied in the forward-looking statements. When you consider these forward-looking statements, you should keep in mind these risk factors and other cautionary statements in this prospectus.

Our forward-looking statements speak only as of the date made. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless the securities laws require us to do so.

21

EXCHANGE OFFER

Purpose and Effect of the Exchange Offer

In connection with the issuance of the old notes, we entered into a registration rights agreement under which we agreed to:

• within 90 days after the issue date of the old notes, file a registration statement with the Securities and Exchange Commission with respect to a registered offer to exchange the old notes for new notes of ours having terms substantially identical in all material respects to the old notes except with respect to transfer restrictions;

• use our reasonable best efforts to cause the registration statement to be declared effective under the Securities Act within 210 days after the issue date of the old notes;

• use our best efforts to consummate the exchange offer on the earliest practicable date after the registration statement is declared effective, but in no event later than 240 days after the issue date of the old notes;

• keep the exchange offer open for not less than 20 days (or longer if required by applicable law) after the date notice of the exchange offer is mailed to the holders of the old notes; and

• to file a shelf registration for the resale of the old notes if we cannot consummate the exchange offer within the time period listed above and certain other circumstances described in this prospectus.

For each old note tendered to us pursuant to the exchange offer, we will issue to the holder of such old note a new note having a principal amount equal to that of the surrendered old note. Interest on each new note will accrue from the last interest payment date on which interest was paid on the old note surrendered in exchange therefor, or, if no interest has been paid on such old note, from the date of its original issue.

Under existing interpretations of the staff of the Securities and Exchange Commission issued to third parties, the new notes will be freely transferable by holders other than our affiliates after the exchange offer without further registration under the Securities Act if the holder of the new notes represents to us in the exchange offer that it is acquiring the new notes in the ordinary course of its business, that it has no arrangement or understanding with any person to participate in the distribution of the new notes and that it is not our affiliate, as such terms are interpreted by the Securities and Exchange Commission; provided, however that broker-dealers receiving new notes in the exchange offer will have a prospectus delivery requirement with respect to resales of such new notes. The staff of the Securities and Exchange Commission has taken the position in interpretations issued to third parties that participating broker-dealers may fulfill their prospectus delivery requirements with respect to new notes (other than a resale of an unsold allotment from the original sale of the old notes) with the prospectus contained in the registration statement covering the new notes. Each broker-dealer that receives new notes for its own account in exchange for old notes, where such old notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such new notes.

Under the registration rights agreement, we are required to allow participating broker-dealers and other persons, if any, with similar prospectus delivery requirements to use the prospectus contained in the registration statement in connection with the resale of the new notes for 180 days following the effective date of such registration statement (or such shorter period during which participating broker-dealers are required by law to deliver such prospectus).

A holder of old notes (other than certain specified holders) who wishes to exchange old notes for new notes in the exchange offer will be required to represent that any new notes to be received by it will be acquired in the ordinary course of its business and that at the time of the commencement of the exchange offer it has no arrangement or understanding with any person to participate in the distribution (within the meaning of the

22

Securities Act) of the new notes and that it is not our “affiliate,” as defined in Rule 405 of the Securities Act, or if it is an affiliate, that it will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable.

In the event that:

• any change of law or in applicable interpretations thereof by the staff of the Securities and Exchange Commission issued to third parties do not permit us to effect an exchange offer;

• for any reason the exchange offer is not consummated within 240 days after the date of the original issuance of the old notes; or

• any holder of old notes notifies us prior to the 20th day following the date of the consummation of the exchange offer that such holder is prohibited by applicable law or Securities and Exchange Commission policy from participating in the exchange offer;

then we will, at our cost, file and use our reasonable best efforts to have declared effective a shelf registration statement covering resales of the old notes as promptly as practicable (but in no event more than 90 days after the occurrence of any of the events set forth above).

We will use our reasonable best efforts to cause the shelf registration statement to be declared effective under the Securities Act and use our best efforts to keep the shelf registration statement continuously effective for a period until the earlier of (i) the expiration of the period referred to in Rule 144(k) under the Securities Act (or any successor rule) with respect to the old notes or (ii) such shorter period that will terminate when all the old notes covered by such shelf registration statement have been sold pursuant to such shelf registration statement. We will, if we file a shelf registration statement, among other things, provide to each holder for whom such shelf registration statement was filed copies of the prospectus which is a part of the shelf registration statement, notify each such holder when the shelf registration statement has become effective and take certain other actions as are required to permit unrestricted resales of the old notes or the new notes, as the case may be. A holder selling such old notes or new notes pursuant to the shelf registration statement generally would be required to be named as a selling security holder in the related prospectus and to deliver a prospectus to purchasers, will be subject to certain of the civil liability provisions under the Securities Act in connection with such sales and will be bound by the provisions of the registration rights agreement which are applicable to such holder (including certain indemnification obligations).

The registration rights agreement obligates us to pay special interest (“Special Interest”) on the principal amount of the old notes and the new notes (in addition to the stated interest on the old notes and the new notes) upon the occurrence of any of the following events:

• on or prior to the 90th day following the date of original issuance of the old notes, the exchange offer registration statement has not been filed with the Securities and Exchange Commission;

• on or prior to the 45th day after the obligation to file the shelf registration statement has arisen, the shelf registration statement has not been filed with the Securities and Exchange Commission;

• on or prior to the 210th day following the date of original issuance of the old notes, the exchange offer registration statement has not been declared effective;

• on or prior to the 90th day after the obligation to file the shelf registration statement has arisen, the shelf registration statement has not been declared effective;

• on or prior to the 240th day following the date of original issuance of the old notes, the registered exchange offer has not been consummated; or

23

• after either the exchange offer registration statement or the shelf registration statement has been declared effective, such registration statement thereafter ceases to be effective or fail to be usable in connection with the resales of old notes in accordance with and during the periods specified in the registration rights agreement without being succeeded immediately by a post-effective amendment to such registration statement that cures such failure and that is itself immediately declared effective.

We refer herein to any of the foregoing occurrences as a registration default.

Special Interest will accrue on the principal amount of the old notes and the new notes (in addition to the stated interest on the old notes and the new notes) from and including the date on which any registration default shall occur to but excluding the date on which all registration defaults have been cured. Special Interest will accrue at a rate of .25% per annum during the 90-day period immediately following the occurrence of a registration default and shall increase by .25% per annum at the end of each subsequent 90-day period, but in no event shall such rate exceed 1.5% per annum. The failure to have the registration statement of which this prospectus is a part declared effective by March 22, 2004 resulted in the occurrence of a registration default which obligates us to pay Special Interest from that date to the date of effectiveness of the registration statement. Special Interest related to the old notes is accruing at $1,111.11 per day since March 22, 2004.

All references in the indenture, in any context, to any interest or other amount payable on or with respect to the old notes or new notes shall be deemed to include any Special Interest pursuant to the registration rights agreement.

Resale of New Notes

Based on no action letters of the staff of the Securities and Exchange Commission issued to third parties, we believe that new notes may be offered for resale, resold and otherwise transferred by you without further compliance with the registration and prospectus delivery provisions of the Securities Act if:

• you are not our “affiliate” within the meaning of Rule 405 under the Securities Act;

• such new notes are acquired in the ordinary course of your business; and

• you do not intend to participate in the distribution of such new notes.

The staff of the Securities and Exchange Commission, however, has not considered the exchange offer for the new notes in the context of a no action letter, and the staff of the Securities and Exchange Commission may not make a similar determination as in the no action letters issued to these third parties.

If you tender in the exchange offer with the intention of participating in any manner in a distribution of the new notes:

• you cannot rely on such interpretations by the Securities and Exchange Commission staff issued to third parties; and

• you must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction.

Unless an exemption from registration is otherwise available, any security holder intending to distribute new notes should be covered by an effective registration statement under the Securities Act. This registration statement should contain the selling security holder’s information required by Item 507 of Regulation S-K under the Securities Act. This prospectus may be used for an offer to resell, resale or other retransfer of new notes only as specifically described in this prospectus. Only broker-dealers that acquired the old notes as a result of market-making activities or other trading activities may participate in the exchange offer. Each broker-dealer that receives new notes for its own account in exchange for old notes, where such old notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of the new notes.

24

Terms of the Exchange Offer

Subject to the terms and conditions described in this prospectus and in the letter of transmittal, we will accept for exchange any old notes properly tendered and not withdrawn prior to the expiration date. We will issue new notes in principal amount equal to the principal amount of old notes surrendered under the exchange offer. Old notes may be tendered only for new notes and only in integral multiples of $1,000.

The exchange offer is not conditioned upon any minimum aggregate principal amount of old notes being tendered for exchange.

As of the date of this prospectus, $160,000,000 aggregate principal amount of the old notes is outstanding. This prospectus and the letter of transmittal are being sent to all registered holders of old notes. There will be no fixed record date for determining registered holders of old notes entitled to participate in the exchange offer.

We intend to conduct the exchange offer in accordance with the provisions of the registration rights agreement, the applicable requirements of the Securities Act of 1933 and the Securities Exchange Act of 1934 and the rules and regulations of the Securities and Exchange Commission. Old notes that the holders thereof do not tender for exchange in the exchange offer will remain outstanding and continue to accrue interest. These old notes will be entitled to the rights and benefits such holders have under the indenture relating to the old notes and the registration rights agreement.

We will be deemed to have accepted for exchange properly tendered old notes when we have given oral or written notice of the acceptance to the exchange agent and complied with the applicable provisions of the registration rights agreement. The exchange agent will act as agent for the tendering holders for the purposes of receiving the new notes from us.

If you tender old notes in the exchange offer, you will not be required to pay brokerage commissions or fees or, subject to the letter of transmittal, transfer taxes with respect to the exchange of old notes. We will pay all charges and expenses, other than certain applicable taxes described below, in connection with the exchange offer.

We will return any old notes that we do not accept for exchange for any reason without expense to their tendering holder promptly after the expiration or termination of the exchange offer.

Expiration Date

The exchange offer will expire at 5:00 p.m. New York City time on                     , 2004 unless, in our sole discretion, we extend it.

Extensions, Delays in Acceptance, Termination or Amendment

We expressly reserve the right, at any time or various times, to extend the period of time during which the exchange offer is open. In order to extend the exchange offer, we will notify the exchange agent orally or in writing of any extension. We will notify the registered holders of old notes of the extension by issuing a press release no later than 9:00 a.m., New York City time, on the business day after the previously scheduled expiration date.

If any of the conditions described below under “—Conditions to the Exchange Offer” have not been satisfied, we reserve the right, in our sole discretion

• to amend the terms of the exchange offer or

• to terminate the exchange offer.

25

If we waive any material condition to the exchange offer, or amend the exchange offer in any other material respect, we will promptly disclose such waiver or amendment by filing a post-effective amendment to the registration statement of which this prospectus is a part. We will also promptly announce any such waiver or amendments by issuing a press release. In the event of any material change in the terms of the offer including the waiver of a material condition, we will extend the exchange offer so that at least five business days remain in the offer period following the material change. If we exercise our right to waive a condition of the exchange offer for one security holder, we will waive such condition for all security holders.

Conditions to the Exchange Offer

Notwithstanding any other provision of the exchange offer, we are not required to accept for exchange, or to issue new notes in exchange for any old notes and may terminate or amend the exchange offer, if any of the following events occur prior to the expiration of the exchange offer:

• the exchange offer violates any applicable law or applicable interpretation of the staff of the Securities and Exchange Commission;

• an action or proceeding shall have been instituted or threatened in any court or by any governmental agency that might materially impair our or any subsidiary guarantor’s ability to proceed with the exchange offer;

• we shall not have received all governmental approvals that we deem necessary to consummate the exchange offer; or

• there has been proposed, adopted, or enacted any law, statute, rule or regulation that, in our reasonable judgment, would materially impair our ability to consummate the exchange offer.

All material conditions to the exchange offer must be satisfied or waived prior to the expiration date of the exchange offer. The exchange offer is also subject to various procedural requirements described below with which holders must comply.

We expressly reserve the right to amend or terminate the exchange offer, and to reject for exchange any old notes not previously accepted for exchange, upon the occurrence prior to the expiration of the exchange offer of any of the conditions to the exchange offer specified above.

These conditions are for our sole benefit, and we may assert them or waive them in whole or in part at any time prior to or on the expiration of the exchange offer in our sole discretion. If we fail at any time to exercise any of these rights, this failure will not mean that we have waived our rights. Each such right will be deemed an ongoing right that we may assert at any time prior to or on the expiration of the exchange offer.

In addition, we will not accept for exchange any old notes tendered, and will not issue new notes in exchange for any such old notes, if at such time any stop order has been threatened or is in effect with respect to the registration statement of which this prospectus constitutes a part or the qualification of the indenture relating to the new notes under the Trust Indenture Act of 1939.

Procedures for Tendering

How to tender generally

Only a holder of old notes may tender such old notes in the exchange offer. To tender in the exchange offer, a holder must:

• complete, sign and date the letter of transmittal, or a facsimile of the letter of transmittal;

• have the signature on the letter of transmittal guaranteed if the letter of transmittal so requires; and

26

• mail or deliver such letter of transmittal or facsimile to the exchange agent prior to the expiration date; or

• comply with the automated tender offer program procedures of The Depository Trust Company, or DTC, described below.

In addition, either:

• the exchange agent must receive old notes along with the letter of transmittal;

• the exchange agent must receive, prior to the expiration date, a timely confirmation of book-entry transfer of such old notes into the exchange agent’s account at DTC according to the procedure for book-entry transfer described below or a properly transmitted agent’s message; or

• the holder must comply with the guaranteed delivery procedures described below.

To be tendered effectively, the exchange agent must receive any physical delivery of the letter of transmittal and other required documents at its address indicated on the cover page of the letter of transmittal. The exchange agent must receive such documents prior to the expiration of the exchange offer.

The tender by a holder that is not withdrawn prior to the expiration of the exchange offer will constitute an agreement between the holder and us in accordance with the terms and subject to the conditions described in this prospectus and in the letter of transmittal.

The method of delivery of old notes, the letter of transmittal and all other required documents to the exchange agent is at your election and risk. Rather than mail these items, we recommend that you use an overnight or hand delivery service. In all cases, you should allow sufficient time to assure delivery to the exchange agent before the expiration of the exchange offer. You should not send the letter of transmittal or old notes to us. You may request your brokers, dealers, commercial banks, trust companies or other nominees to effect the above transactions for you.

How to tender if you are a beneficial owner

If you beneficially own old notes that are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and you wish to tender those notes, you should contact the registered holder promptly and instruct it to tender on your behalf. If you are a beneficial owner and wish to tender on your own behalf, you must, prior to completing and executing the letter of transmittal and delivering your old notes, either:

• make appropriate arrangements to register ownership of the old notes in your name; or

• obtain a properly completed bond power from the registered holder of old notes.

The transfer of registered ownership may take considerable time and may not be completed prior to the expiration date.

Signatures and signature guarantees

You must have signatures on a letter of transmittal or a notice of withdrawal (as described below) guaranteed by a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States, or an “eligible guarantor institution” within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934. In addition, such entity must be a member of one of the recognized signature guarantee programs identified in the letter of transmittal. Signature guarantees are not required, however, if the notes are tendered:

• by a registered holder who has not completed the box entitled “Special Issuance Instructions” or “Special Delivery Instructions” on the letter of transmittal; or

27

• for the account of a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States, or an eligible guarantor institution.

When you need endorsements or bond powers

If the letter of transmittal is signed by a person other than the registered holder of any old notes, the old notes must be endorsed or accompanied by a properly completed bond power. The bond power must be signed by the registered holder as the registered holder’s name appears on the old notes. A member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States, or an eligible guarantor institution must guarantee the signature on the bond power.

If the letter of transmittal or any old notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, those persons should so indicate when signing. Unless waived by us, they should also submit evidence satisfactory to us of their authority to deliver the letter of transmittal.

Tendering through DTC’s automated tender offer program

The exchange agent and DTC have confirmed that any financial institution that is a participant in DTC’s system may use DTC’s automated tender offer program to tender. Participants in the program may, instead of physically completing and signing the letter of transmittal and delivering it to the exchange agent, transmit their acceptance of the exchange offer electronically. They may do so by causing DTC to transfer the old notes to the exchange agent in accordance with its procedures for transfer. DTC will then send an agent’s message to the exchange agent.

The term “agent’s message” means a message transmitted by DTC, received by the exchange agent and forming part of the book-entry confirmation, to the effect that:

• DTC has received an express acknowledgment from a participant in its automated tender offer program that it is tendering old notes that are the subject of such book-entry confirmation;

• such participant has received and agrees to be bound by the terms of the letter of transmittal or, in the case of an agent’s message relating to guaranteed delivery, that such participant has received and agrees to be bound by the applicable notice of guaranteed delivery; and

• the agreement may be enforced against such participant.

Determinations under the exchange offer

We will determine in our sole discretion all questions as to the validity, form, eligibility, time of receipt, acceptance of tendered old notes and withdrawal of tendered old notes. Our determinations will be final and binding. We reserve the absolute right to reject any old notes not properly tendered or any old notes our acceptance of which would, in the opinion of our counsel, be unlawful. We also reserve the right to waive any defects, irregularities or conditions of tender as to particular old notes. If we exercise our right to waive a condition of the exchange offer for one security holder, we will waive such condition for all security holders. Our interpretation of the terms and conditions of the exchange offer, including the instructions in the letter of transmittal, will be final and binding on all parties. Unless waived, all defects or irregularities in connection with tenders of old notes must be cured within such time as we shall determine. Although we intend to notify holders of defects or irregularities with respect to tenders of old notes, neither we, the exchange agent nor any other person will incur any liability for failure to give such notification. Tenders of old notes will not be deemed made until such defects or irregularities have been cured or waived. Any old notes received by the exchange agent that

28

are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned to the tendering holder, unless otherwise provided in the letter of transmittal, promptly following the expiration date.

When we will issue new notes

In all cases, we will issue new notes for old notes that we have accepted for exchange under the exchange offer only after the exchange agent timely receives:

• old notes or a timely book-entry confirmation of such old notes into the exchange agent’s account at DTC; and

• a properly completed and duly executed letter of transmittal and all other required documents or a properly transmitted agent’s message.

Return of old notes not accepted or exchanged

If we do not accept any tendered old notes for exchange or if old notes are submitted for a greater principal amount than the holder desires to exchange, the unaccepted or non-exchanged old notes will be returned without expense to their tendering holder. In the case of old notes tendered by book-entry transfer in the exchange agent’s account at DTC according to the procedures described below, such non-exchanged old notes will be credited to an account maintained with DTC. These actions will occur promptly after the expiration or termination of the exchange offer.

Your representations to us

By signing or agreeing to be bound by the letter of transmittal, you will represent to us that, among other things:

• any new notes that you receive will be acquired in the ordinary course of your business;

• you have no arrangement or understanding with any person or entity to participate in the distribution of the new notes within the meaning of the Securities Act;

• if you are not a broker-dealer that you are not engaged in and do not intend to engage in the distribution of the new notes;

• if you are a broker-dealer that will receive new notes for your own account in exchange for old notes, you acquired those notes as a result of market-making activities or other trading activities and you will deliver a prospectus, as required by law, in connection with any resale of such new notes; and

• you are not our “affiliate,” as defined in Rule 405 of the Securities Act or if you are our “affiliate” that you will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable.

Book-Entry Transfer

The exchange agent will establish an account with respect to the old notes at DTC for purposes of the exchange offer promptly after the date of this prospectus. Any financial institution participating in DTC’s system may make book-entry delivery of old notes by causing DTC to transfer such old notes into the exchange agent’s account at DTC in accordance with DTC’s procedures for transfer. Holders of old notes who are unable to deliver confirmation of the book-entry tender of their old notes into the exchange agent’s account at DTC or all other documents required by the letter of transmittal to the exchange agent on or prior to the expiration date must tender their old notes according to the guaranteed delivery procedures described below.

29

Guaranteed Delivery Procedures

If you wish to tender your old notes but your old notes are not immediately available or you cannot deliver your old notes, the letter of transmittal or any other required documents to the exchange agent or comply with the applicable procedures under DTC’s automated tender offer program prior to the expiration date, you may tender if:

• the tender is made through a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States, or an eligible guarantor institution,

• prior to the expiration date, the exchange agent receives from such member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., commercial bank or trust company having an office or correspondent in the United States, or eligible guarantor institution either a properly completed and duly executed notice of guaranteed delivery by facsimile transmission, mail or hand delivery or a properly transmitted agent’s message and notice of guaranteed delivery:

— setting forth your name and address, the registered number(s) of your old notes and the principal amount of old notes tendered,

— stating that the tender is being made thereby, and

— guaranteeing that, within three New York Stock Exchange trading days after the expiration date, the letter of transmittal or facsimile thereof, together with the old notes or a book-entry confirmation, and any other documents required by the letter of transmittal will be deposited by the eligible guarantor institution with the exchange agent, and

• the exchange agent receives such properly completed and executed letter of transmittal or facsimile thereof, as well as all tendered old notes in proper form for transfer or a book-entry confirmation, and all other documents required by the letter of transmittal, within three New York Stock Exchange trading days after the expiration date.

Upon request to the exchange agent, a notice of guaranteed delivery will be sent to you if you wish to tender your old notes according to the guaranteed delivery procedures described above.

Withdrawal of Tenders

Except as otherwise provided in this prospectus, you may withdraw your tender at any time prior to the expiration of the exchange offer.

For a withdrawal to be effective:

• the exchange agent must receive a written notice of withdrawal at the address indicated on the cover page of the letter of transmittal, or

• you must comply with the appropriate procedures of DTC’s automated tender offer program system.

Any notice of withdrawal must:

• specify the name of the person who tendered the old notes to be withdrawn, and

• identify the old notes to be withdrawn, including the principal amount of such old notes.

If old notes have been tendered under the procedure for book-entry transfer described above, any notice of withdrawal must specify the name and number of the account at DTC to be credited with withdrawn old notes and otherwise comply with the procedures of DTC.

30

We will determine all questions as to the validity, form, eligibility and time of receipt of notice of withdrawal. Our determination shall be final and binding on all parties. We will deem any old notes so withdrawn not to have been validly tendered for exchange for purposes of the exchange offer.

Any old notes that have been tendered for exchange but that are not exchanged for any reason will be returned to their holder without cost to the holder. In the case of old notes tendered by book-entry transfer into the exchange agent’s account at DTC according to the procedures described above, such old notes will be credited to an account maintained with DTC for the old notes. This return or crediting will take place promptly after withdrawal, rejection of tender or termination of the exchange offer. You may retender properly withdrawn old notes by following one of the procedures described under “—Procedures for Tendering” above at any time on or prior to the expiration of the exchange offer.

Fees and Expenses

We will bear the expenses of soliciting tenders. The principal solicitation is being made by mail; however, we may make additional solicitation by telegraph, telephone or in person by our officers and regular employees and those of our affiliates.

We have not retained any dealer-manager in connection with the exchange offer and will not make any payments to broker-dealers or others soliciting acceptances of the exchange offer. We will, however, pay the exchange agent reasonable and customary fees for its services and reimburse it for its related reasonable out-of-pocket expenses.

We will pay the cash expenses to be incurred in connection with the exchange offer. They include:

• Securities and Exchange Commission registration fees;

• fees and expenses of the exchange agent and trustee;

• accounting and legal fees and printing costs; and

• related fees and expenses.

Transfer Taxes

We will pay all transfer taxes, if any, applicable to the exchange of old notes under the exchange offer. The tendering holder, however, will be required to pay any transfer taxes, whether imposed on the registered holder or any other person, if:

• certificates representing old notes for principal amounts not tendered or accepted for exchange are to be delivered to, or are to be issued in the name of, any person other than the registered holder of old notes tendered;

• tendered old notes are registered in the name of any person other than the person signing the letter of transmittal; or

• a transfer tax is imposed for any reason other than the exchange of old notes under the exchange offer.

If satisfactory evidence of payment of any transfer taxes payable by a note holder is not submitted with the letter of transmittal, the amount of such transfer taxes will be billed directly to that tendering holder.

Consequences of Failure to Exchange

If you do not exchange new notes for your old notes under the exchange offer, you will remain subject to the existing restrictions on transfer of the old notes. In general, you may not offer or sell the old notes unless they are

31

registered under the Securities Act or unless the offer or sale is exempt from the registration under the Securities Act and applicable state securities laws. Except as required by the registration rights agreement, we do not intend to register resales of the old notes under the Securities Act.

Accounting Treatment

We will record the new notes in our accounting records at the same carrying value as the old notes. This carrying value is the aggregate principal amount less the original issue discount of the old notes, as reflected in our accounting records on the date of exchange. Accordingly, we will not recognize any gain or loss for accounting purposes in connection with the exchange offer. The expenses of the exchange offer will be amortized over the term of the new notes.

Other

Participation in the exchange offer is voluntary, and you should carefully consider whether to accept. You are urged to consult your financial and tax advisors in making your own decision on what action to take.

We may in the future seek to acquire untendered old notes in open market or privately negotiated transactions, through subsequent exchange offers or otherwise. We have no present plans to acquire any old notes that are not tendered in the exchange offer or to file a registration statement to permit resales of any untendered old notes.

32

USE OF PROCEEDS

The exchange offer is intended to satisfy our obligations under the registration rights agreement. We will not receive any cash proceeds from the issuance of the new notes in the exchange offer. In consideration for issuing the new notes as contemplated by this prospectus, we will receive old notes in a like principal amount. The form and terms of the new notes are identical in all respects to the form and terms of the old notes, except the new notes are registered under the Securities Act and will not have restrictions on transfer, registration rights or provisions for additional interest. Old notes surrendered in exchange for the new notes will be retired and cancelled and will not be reissued. Accordingly, the issuance of the new notes will not result in any increase in our outstanding indebtedness.

On August 25, 2003, we completed a series of refinancing transactions that included (i) issuing $160.0 million aggregate principal amount of the old notes and (ii) entering into a new $320.0 million senior secured credit facility. The new credit facility consists of a $175.0 million term loan facility that matures in fiscal 2010 and a $145.0 million revolving loan facility that matures in fiscal 2009. We used the proceeds from the old notes offering and the new credit facility to (1) repay the $298.6 million outstanding under our previous credit facility, (2) repay in full $12.0 million in aggregate principal amount of our 12% senior subordinated notes due June 30, 2007, (3) repay $20.5 million in aggregate principal amount of our 14.5% subordinated notes due March 1, 2010 at a repurchase price of approximately $23.2 million, and (4) pay approximately $16.0 million of related fees and expenses. We used the remainder of the proceeds, consisting of approximately $0.3 million, for general corporate purposes. Prior to this refinancing, our 14.5% subordinated notes due March 1, 2010 matured on January 18, 2009 and accrued interest at a rate of 13.5% per annum. The offering of the old notes, the entry into our new credit facility and the use of the net proceeds from the offering of the old notes and borrowings under our new credit facility, as discussed above, are referred to collectively herein as the “Refinancing Transactions.”

33

CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization at March 31, 2004. This table should be read together with the other financial information appearing elsewhere in this prospectus.

	March 31, 2004
	(dollars in thousands)
Cash and cash equivalents	$	1,499
Long-term debt, including current portion
Credit facility		201,425
11 3/4% senior subordinated notes due September 1, 2010(1)		159,110
14.5% subordinated notes due March 1, 2010(2)		20,674
Total long-term debt, including current portion		381,209
Redeemable preferred stock		170,500
Total shareholders’ net capital deficiency		(76,203	)
Total capitalization	$	475,506

(1) Reflects proceeds from the issuance of $160 million in notes less the original issue discount of $943,000 and subsequent amortization of bond discount.

(2) In connection with our August, 2003 refinancing, we amended the terms of our 14.5% subordinated notes due March 1, 2010 to extend the maturity date from January 18, 2009 and to increase the interest rate from 13.5% per annum.

34

SELECTED HISTORICAL FINANCIAL DATA

The following table presents our selected historical financial data for each of the five fiscal years in the period ended June 30, 2003 and the nine months ended March 31, 2003 and 2004 and selected historical balance sheet data as of June 30, 1999, 2000, 2001, 2002, 2003 and March 31, 2004. The selected historical financial data as of June 30, 1999, 2000, 2001, 2002 and 2003 and for each of the five fiscal years ended June 30, 2003 have been derived from our financial statements, which have been audited by Ernst & Young LLP, independent auditors. The results of operations and other operating and financial data below as of March 31, 2004 and for the nine months ended March 31, 2003 and 2004 are derived from our unaudited financial statements which reflect only normal recurring adjustments, which, in the opinion of our management, are necessary for the fair presentation of this information. You should not expect the results of operations and other operating and financial data or other operating data for interim periods to be an indication of results for a full year. The following financial information should be read in conjunction with our financial statements, and the related notes to those statements, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.

	Fiscal Year Ended June 30,															Nine Months Ended March 31,
	1999(1)			2000			2001			2002			2003			2003			2004
	Restated(2)			Restated(2)			Restated(2)			Restated(2)			Restated(2)			Restated(2)
							(dollars in thousands)									(unaudited)
Results of Operations Data:
Revenues	$	49,837		$	82,046		$	100,198		$	111,339		$	126,406		$	92,606		$	111,248
Cost of services		6,371			10,472			11,819			13,522			14,592			10,993			12,243
Gross profit		43,466			71,574			88,379			97,817			111,814			81,613			99,005
Sales, general and administrative		11,045			15,660			17,979			20,570			23,014			16,738			19,205
Depreciation		668			1,297			1,634			1,923			2,067			1,565			1,620
Amortization(3)		19,007			35,161			43,302			49,295			57,162			41,857			51,167
Operating income		12,746			19,456			25,464			26,029			29,571			21,453			27,013
Interest expense		11,757			22,064			27,951			20,941			23,268			17,503			25,626
Loss on debt refinancing		—			—			—			—			—			—			8,828
Other expense		—			—			—			504			—			—			—
Income (loss) before income taxes		989			(2,608	)		(2,487	)		4,584			6,303			3,950			(7,441	)
Provision (benefit) for income taxes		382			(959	)		(908	)		1,795			2,543			1,526			(2,657	)
Net income (loss)	$	607		$	(1,649	)	$	(1,579	)	$	2,789		$	3,760		$	2,424		$	(4,784	)
Preferred dividends accrued(4)	$	(1,412	)	$	(2,940	)	$	(4,603	)	$	(15,020	)	$	(18,457	)	$	(13,560	)	$	(15,426	)
Accretion of redeemable convertible preferred stock discount		(31	)		(102	)		(114	)		(193	)		(214	)		(161	)		(163	)
Issuance of Series C-1 preferred stock to Series C preferred shareholders		—			—			(4,950	)		—			—			—			—
Net income (loss) available to common shareholders	$	(836	)	$	(4,691	)	$	(11,246	)	$	(12,424	)	$	(14,911	)	$	(11,297	)	$	(20,373	)
Other Operating and Financial Data:
Subscriber accounts owned at period end(5)		213,397			265,816			304,360			335,390			389,905			372,715			425,291
Subscriber accounts purchased(6)		73,744			86,368			83,816			75,097			99,476			91,794			100,425
Purchases of subscriber accounts(5)(6)	$	72,459		$	93,290		$	92,859		$	79,276		$	106,521		$	75,387		$	81,882
Cash flow from operating activities		16,839			27,694			37,103			48,263			60,029			43,898			58,399
Cash flow from financing activities		128,211			66,826			58,531			33,404			47,988			32,300			25,647
Cash flow used in investing activities		(144,724	)		(94,938	)		(95,683	)		(81,654	)		(107,700	)		(76,119	)		(82,881	)
EBITDA(7)		32,421			55,914			70,400			76,743			88,800			64,875			79,800
Capital expenditures		2,265			1,648			2,824			2,378			1,179			732			999
Ratio of earnings to fixed charges(8)		1.09x			—			—			1.22x			1.28x			1.23x			—
Ratio of earnings to combined fixed charges and preferred stock dividends(9)		—			—			—			—			—			—			—

35

	As of June 30,															As of March 31,
	1999			2000			2001			2002			2003			2004
	Restated(2)			Restated(2)			Restated(2)			Restated(2)			(Restated)(2)			(Unaudited)
	(dollars in thousands)
Balance Sheet Data:
Cash and cash equivalents	$	471		$	53		$	4		$	17		$	334		$	1,499
Working capital (deficit)		(9,328	)		(7,917	)		(28,028	)		(6,667	)		(11,860	)		(19,660	)
Total assets		238,707			299,871			357,418			399,650			457,313			503,562
Total debt		191,674			259,731			269,631			288,785			337,973			381,209
Redeemable preferred stock, including accrued dividends		39,021			42,055			101,198			136,264			154,935			170,500
Total shareholders’ net capital deficiency		(11,562	)		(16,255	)		(27,500	)		(39,919	)		(54,830	)		(76,203	)

(1) Our results of operations for fiscal 1999 include the acquisition of approximately 60,000 subscriber accounts from Dealer’s Monitoring Acceptance Corporation (“DMAC”) on March 9, 1999.

(2) We restated our financial statements for the fiscal years ended June 30, 1999, 2000, 2001, 2002, 2003 and the nine months ended March 31, 2003 to properly account for the change in amortization method from a 10-year straight-line method to a 10-year 135% declining balance method and record deferred revenue related to billings to our subscribers as more fully described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Restatement of Prior Financial Statements.” The restatements reduced previously reported revenues and net income and increased amortization for these periods as follows:

	1999								2000
	Previously Reported		Adjustment			Adjusted Balance			Previously Reported		Adjustment			Adjusted Balance
	(dollars in thousands)								(dollars in thousands)
Revenue	$	50,491	$	(654	)	$	49,837		$	82,831	$	(785	)	$	82,046
Amortization	$	15,544	$	3,463		$	19,007		$	29,112	$	6,049		$	35,161
Net Income (Loss)	$	3,196	$	(2,589	)	$	607		$	2,653	$	(4,302	)	$	(1,649	)
	2001								2002
	Previously Reported		Adjustment			Adjusted Balance			Previously Reported		Adjustment			Adjusted Balance
	(dollars in thousands)								(dollars in thousands)
Revenue	$	100,799	$	(601	)	$	100,198		$	111,881	$	(542	)	$	111,339
Amortization	$	38,423	$	4,879		$	43,302		$	45,968	$	3,327		$	49,295
Net Income (Loss)	$	1,872	$	(3,451	)	$	(1,579	)	$	5,223	$	(2,434	)	$	2,789
	2003								Nine Months Ended March 31, 2003
	Previously Reported		Adjustment			Adjusted Balance			Previously Reported		Adjustment			Adjusted Balance
	(dollars in thousands)								(dollars in thousands)
Revenue	$	126,406	$	—		$	126,406		$	93,106	$	(500	)	$	92,606
Amortization	$	54,885	$	2,277		$	57,162		$	40,176	$	1,681		$	41,857
Net Income	$	5,197	$	(1,437	)	$	3,760		$	3,789	$	(1,365	)	$	2,424

(3) Primarily represents the amortization of subscriber accounts and goodwill. We capitalize all direct external costs associated with the purchase of subscriber accounts and amortize them over ten years on a straight line basis. In addition, as part of previous acquisitions including DMAC, we began amortizing goodwill. Effective July 1, 2001, with the adoption of Statement of Financial Accounting Standards No. 142, the Company no longer amortizes goodwill. For fiscal years 1999, 2000 and 2001, $46,905, $228,225 and $773,000, respectively, of our amortization expense related to the amortization of goodwill.

(4) We are currently accruing cumulative dividends on each series of our preferred stock at varying rates, but our ability to pay these dividends in cash will be limited by the terms of the notes.

(5) Does not include non-owned accounts for which we provide third-party contract monitoring services to independent dealers.

36

(6) Purchase of subscriber accounts in fiscal 1999 excludes our acquisition of approximately 60,000 subscriber accounts from DMAC.

(7) EBITDA represents earnings before interest, taxes, depreciation and amortization (including the amortization of subscriber accounts). EBITDA does not represent cash flow from operations as defined by generally accepted accounting principles, should not be construed as an alternative to net income and is indicative neither of our operating performance nor of cash flows available to fund all of our cash needs. It is, however, a measurement we believe is useful to our investors to evaluate our operating performance. EBITDA is also a measure that we believe is customarily used by financial analysts to evaluate the financial performance of companies in the security alarm monitoring industry and is one of the financial measures, subject to adjustments, by which our covenants are calculated under the agreements governing our debt obligations. Set forth below is the calculation of EBITDA and the reconciliation of EBITDA to net income:

	Fiscal Year Ended June 30,												Nine Months Ended March 31,
	1999		2000			2001			2002		2003		2003		2004
	Restated(2)		Restated(2)			Restated(2)			Restated(2)		Restated(2)		Restated(2)
						(dollars in thousands)							(Unaudited)
Net income (loss)	$	607	$	(1,649	)	$	(1,579	)	$	2,789	$	3,760	$	2,424	$	(4,784	)
Interest expense		11,757		22,064			27,951			20,941		23,268		17,503		25,626
Loss on debt refinancing		—		—			—			—		—		—		8,828
Provision (benefit) for income taxes		382		(959	)		(908	)		1,795		2,543		1,526		(2,657	)
Depreciation		668		1,297			1,634			1,923		2,067		1,565		1,620
Amortization		19,007		35,161			43,302			49,295		57,162		41,857		51,167
EBITDA	$	32,421	$	55,914		$	70,400		$	76,743	$	88,800	$	64,875	$	79,800

(8) For purposes of computing the ratio of earnings to fixed charges, earnings consist of income before income taxes for such period plus fixed charges deducted in calculating income before income taxes for such period. Fixed charges consist of interest incurred, amortization of deferred financing costs, and an amount representing the interest factor included in rental expense. Our earnings for the years ended June 30, 2000, 2001 and the nine months ended March 31, 2004 were insufficient to cover fixed charges by $2.6 million, $2.5 million and $7.4 million, respectively. On a pro forma basis after giving effect to our August 2003 refinancing, for the year ended June 30, 2003 and the nine months ended March 31, 2004 our earnings would have been insufficient to cover fixed charges by $6.6 million and $9.5 million, respectively.

(9) For purposes of computing the ratio of earnings to combined fixed charges and preferred stock dividends, earnings consist of income before income taxes for such period plus fixed charges deducted in calculating income before income taxes for such period. Fixed charges consist of interest incurred, amortization of deferred financing costs, accrued dividends, amortization of accretion expenses, an amount representing the interest factor included in rental expense and preferred stock dividends consisting of dividends declared or accrued on our preferred stock and the accretion of the preferred stock discount. Our earnings for fiscal years, 1999, 2000, 2001, 2002, 2003 and for the nine months ended March 31, 2003 and 2004 were insufficient to cover combined fixed charges and preferred stock dividends by $1.3 million, $5.7 million, $7.2 million, $20.3 million, $24.9 million, $18.3 million and $23.0 million, respectively.

37

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

We are a leading national provider of security alarm monitoring services. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with “Selected Historical Financial Data” and our financial statements, and the related notes to those financial statements, included elsewhere in this prospectus. Those statements in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” that are not historical in nature should be considered to be forward-looking statements that are inherently uncertain. See “Forward-Looking Statements.”

Overview

Nearly all of our revenues are derived from monthly recurring revenues under security alarm monitoring contracts purchased from independent dealers in our exclusive nationwide network. Our alarm monitoring contracts generally have an initial term of three years, generally allow for periodic price increases and provide for automatic annual renewals during which the subscriber may cancel the contract upon 30 days’ written notice. Revenues are recognized as the related monitoring services are provided. Other revenues are derived primarily from the provision of third-party contract monitoring services and from field technical repair services.

Cost of services primarily consists of direct labor associated with monitoring and servicing subscriber accounts and expenses related to field technical repair services. Sales, general and administrative expenses primarily include the cost of personnel conducting sales and administrative activities and other costs related to sales, administration and operations. All direct external costs associated with the purchase of subscriber accounts are capitalized and amortized over ten years using a 135% declining balance method. Internal costs, including all personnel and related support costs incurred solely in connection with subscriber account acquisitions and transitions, are expensed as incurred.

Restatement of Prior Period Financial Statements

In the third quarter of fiscal year 2004, we changed our method of amortizing subscriber accounts from a 10-year straight-line method to a 10-year 135% declining balance method. We believe the 10-year 135% declining balance method provides a better matching to individual subscriber revenues. In conjunction with this change in amortization method, we have restated prior period financial statements.

We have previously restated our financial statements to properly record revenue related to billings to our subscribers. The restatement adjusted a small timing difference in revenue recognition that resulted when a subscriber’s monthly service period extended beyond a month end. Historically, we recognized the full monthly invoice as revenue in the current month instead of as revenue for the portion of the bill attributable to service provided in the current month and deferred revenue for the portion of the bill attributable to service to be provided in the next month.

The effect of the restatements on previously reported revenue, amortization and net income for the fiscal years ended June 30, 2003, 2002, 2001 and the three and nine months ended March 31, 2003 is as follows:

Selected Statement of Operations Changes

	2003							2002							2001
	Previously Reported		Adjustment			Adjusted Balance		Previously Reported		Adjustment			Adjusted Balance		Previously Reported		Adjustment			Adjusted Balance
	(dollars in thousands)							(dollars in thousands)							(dollars in thousands)
Revenue	$	126,406	$	–		$	126,406	$	111,881	$	(542	)	$	111,339	$	100,799	$	(601	)	$	100,198
Amortization	$	54,885	$	2,277		$	57,162	$	45,968	$	3,327		$	49,295	$	38,423	$	4,879		$	43,302
Net Income (Loss)	$	5,197	$	(1,437	)	$	3,760	$	5,223	$	(2,434	)	$	2,789	$	1,872	$	(3,451	)	$	(1,579	)

	Three Months Ended March 31, 2003 (unaudited)							Nine Months Ended March 31, 2003 (unaudited)
	Previously Reported		Adjustment			Adjusted Balance		Previously Reported		Adjustment			Adjusted Balance
	(in thousands)							(in thousands)
Revenue	$	32,035	$	(202	)	$	31,833	$	93,106	$	(500	)	$	92,606
Amortization	$	14,028	$	559		$	14,587	$	40,176	$	1,681		$	41,857
Net income (loss)	$	1,663	$	(476	)	$	1,187	$	3,789	$	(1,365	)	$	2,424

38

The effect of the restatements on previously reported balances for subscriber accounts and total shareholders’ net capital deficiency as of June 30, 2003 and 2002 is as follows:

Selected Balance Sheet Changes

	As of June 30, 2003									As of June 30, 2002
	Previously Reported			Adjustment			Adjusted Balance			Previously Reported			Adjustment			Adjusted Balance
	(in thousands)									(in thousands)
Subscriber accounts (net)	$	416,435		$	(23,271	)	$	393,164		$	361,620		$	(20,993	)	$	340,627
Total shareholders’ net capital deficiency	$	(40,152	)	$	(14,678	)	$	(54,830	)	$	(26,678	)	$	(13,241	)	$	(39,919	)

Attrition

We purchase subscriber contracts from our exclusive network of independent dealers. These contracts with our subscribers are typically three-year non-cancelable contracts with an automatic annual renewal provision during which the subscriber may cancel the contract upon 30 days’ written notice. A portion of our subscriber base can be expected to cancel its service every year. Subscribers may choose not to renew or terminate their contract for a variety of reasons, including relocation, cost, switching to our competitors’ service, and service issues. A majority of canceled accounts result from subscriber relocation or the inability to contact the subscriber.

Account cancellation, otherwise referred to as subscriber attrition, has a direct impact on the number of subscribers we serve and hence our financial results, including revenues, operating income and cash flow. We define our attrition rate as the number of canceled accounts in a given period divided by the average of the beginning and ending balance of subscribers for that period. We consider an account canceled when a subscriber terminates in accordance with the terms of the contract or if payment from the subscriber is deemed uncollectible. If a subscriber relocates but continues his service, this is not a cancellation. If the subscriber relocates and discontinues his service and a new subscriber takes over the service continuing the revenue stream, this is a cancellation and a new owner takeover. We adjust the number of canceled accounts by excluding those that are contractually guaranteed by our dealers. Our typical dealer contract provides that if a subscriber cancels in the first year of its contract, the dealer must replace the lost monthly revenue attributable to the canceled contract and either replace the canceled account with a new one or refund our purchase price. To help ensure the dealer’s obligation to us, we typically hold back approximately 10% of the purchase price for every account we purchase. In some cases, the amount of the purchase holdback may be less than actual attrition experience. In recent years, a substantial portion of the accounts that canceled within this initial 12-month period were replaced by the dealers at no additional cost to us.

The table below presents subscriber data for the twelve months ended March 31, 2003 and March 31, 2004.

	Fiscal Year Ended June 30,						Twelve Months Ended March 31,
	2001		2002		2003		2003		2004
Beginning balance of accounts	265,816		304,360		335,390		329,376		372,715
Accounts purchased	83,816		75,097		99,476		91,794		100,425
Accounts canceled(1)	(39,704	)	(40,725	)	(42,971	)	(46,391	)	(45,535	)
Accounts guaranteed to be refunded from holdback	(5,568	)	(3,342	)	(1,990	)	(2,064	)	(2,314	)
Ending balance of accounts	304,360		335,390		389,905		372,715		425,291
Attrition rate	13.9%		12.7%		11.8%		13.2%		11.4%

(1) Net of canceled accounts that are contractually guaranteed by the dealer and new owner takeovers.

39

We also analyze our attrition by classifying our accounts into annual pools based on the year of purchase. We then track the number of accounts that cancel as a percentage of the initial number of accounts purchased for each pool for each year subsequent to its purchase. Based on the average cancellation rate across our pools, we achieve nearly 0% attrition in the first year net of canceled accounts that are contractually guaranteed by the dealers. In the next three years, the number of subscribers that cancel as a percentage of the initial number of subscribers in that pool gradually increases and historically has peaked between the third and fourth years. The peak between the third and fourth years is primarily a result of the buildup of subscribers that moved or no longer had need for the service prior to the third year but did not cancel their service until the end of their three-year contract. After the fourth year, the number of subscribers that cancel as a percentage of the initial number of subscribers in that pool declines every year. As a result, we believe our attrition rate decreases as the age of our accounts increase. Our pool analysis also indicates that, on average, over 30% of each pool remains by the end of the tenth year.

Results of Operations

Nine Months Ended March 31, 2004 Compared to Nine Months Ended March 31, 2003

Revenues. Total revenues increased $18.6 million, or 20%, to $111.2 million in the nine months ended March 31, 2004 from $92.6 million in the nine months ended March 31, 2003. This increase was primarily attributable to an increase in the number of subscriber accounts to 425,291 as of March 31, 2004 from 372,715 as of March 31, 2003 and a small net increase in the average revenue per subscriber.

Cost of services. Cost of services increased $1.2 million, or 11%, to $12.2 million in the nine months ended March 31, 2004 from $11.0 million in the nine months ended March 31, 2003. As a percentage of revenues, cost of services decreased to 11% for the nine months ended March 31, 2004 versus 12% for March 31, 2003 principally due to lower field technical service expense as a result of proportionally fewer service calls.

Sales, general and administrative. Sales, general and administrative expense (“SG&A”) increased $2.5 million, or 15%, to $19.2 million in the nine months ended March 31, 2004 from $16.7 million in the nine months ended March 31, 2003. As a percentage of revenues, SG&A decreased to 17% in the nine months ended March 31, 2004 from 18% in the nine months ended March 31, 2003. This was primarily due to the decrease in the provision for uncollectible accounts. For the nine-month period ended March 31, 2004, the provision for uncollectible accounts was $2.6 million, or 2% of revenues, compared to $3.1 million, or 3% of revenues, for the nine months ended March 31, 2003. In fiscal year 2003 we had a third party collection vendor declare bankruptcy which resulted in a disruption in the collection process and a loss of unremitted funds collected.

Amortization. Amortization of intangibles increased $9.3 million, or 22%, to $51.2 million in the nine months ended March 31, 2004 from $41.9 million in the nine months ended March 31, 2003. The increase was attributable to growth in our purchased subscriber accounts through our authorized dealer program.

Interest expense. Interest expense increased $8.1 million, or 46%, to $25.6 million in the nine months ended March 31, 2004 from $17.5 million in the nine months ended March 31, 2003. The increase was due to the increase in our average long-term debt outstanding throughout the year incurred to fund our purchase of accounts, the issuance of our 11.75% $160.0 million of senior subordinated notes on August 25, 2003 and the restructuring of our credit facility on August 25, 2003.

Loss on debt refinancing. Loss on debt refinancing of $8.8 million includes the $5.9 million write-off of deferred financing costs related to our prior credit facility and $2.9 million in prepayment penalties associated with the retirement of a portion of our 14.5% subordinated notes due March 1, 2010 in connection with our refinancing completed August 25, 2003. In connection with this refinancing, we amended the terms of the subordinated notes to extend the maturity date from January 18, 2009 and to increase the interest rate from 13.5% per annum.

40

Net income (loss). Net income decreased $7.2 million to a loss of $4.8 million in the nine months ended March 31, 2004 from net income of $2.4 million in the nine months ended March 31, 2003. The decrease was primarily attributable to expenses incurred in connection with our refinancing and increases in interest expense.

Fiscal 2003 Compared to Fiscal 2002

Revenues. Total revenues increased $15.1 million, or 14%, to $126.4 million in fiscal year 2003 from $111.3 million in fiscal year 2002. This increase was primarily attributable to an increase in the number of subscriber accounts to 389,905 as of June 30, 2003 from 335,390 as of June 30, 2002.

Cost of services. Cost of services increased $1.1 million, or 8%, to $14.6 million in fiscal 2003 from $13.5 million in fiscal 2002. As a percentage of revenues, cost of services remained at 12% in fiscal 2003 and 2002.

Selling, general and administrative. SG&A increased $2.4 million, or 12%, to $23.0 million in fiscal 2003 from $20.6 million in fiscal 2002. As a percentage of revenues, SG&A decreased to 18% in fiscal 2003 from 19% in fiscal 2002. This decrease was primarily attributable to operating efficiencies realized by spreading additional revenues over a relatively fixed cost base. For fiscal 2003 the provision for uncollectible accounts was $4.1 million or 3.2% of revenue compared to $2.5 million or 2.2% of revenue in fiscal 2002. The increase as a percentage of revenue was primarily the result of a third-party collection vendor declaring bankruptcy and the resulting disruption to the collection process and loss of unremitted funds collected by the third-party collection vendor.

Amortization. Amortization of intangibles increased $7.9 million, or 16%, to $57.2 million in fiscal 2003 from $49.3 million in fiscal 2002. The increase was attributable to growth in our purchased subscriber accounts through our authorized dealer program.

Interest expense. Interest expense increased $2.3 million, or 11%, to $23.2 million in fiscal 2003 from $20.9 million in fiscal 2002. The increase was primarily due to the increase in our average long-term debt outstanding throughout the year incurred to fund our purchase of accounts.

Net income. Net income increased $1.0 million, or 36%, to $3.8 million in fiscal 2003 from $2.8 million in fiscal 2002. The increase was primarily attributable to the increase in revenues that resulted from the increase in our subscriber accounts.

Fiscal 2002 Compared to Fiscal 2001

Revenues. Total revenues increased $11.1 million, or 11%, to $111.3 million in fiscal 2002 from $100.2 million in fiscal 2001. This increase was primarily attributable to an increase in the number of subscriber accounts to 335,390 as of June 30, 2002 from 304,360 as of June 30, 2001.

Cost of services. Cost of services increased $1.7 million, or 14%, to $13.5 million in fiscal 2002 from $11.8 million in fiscal 2001. As a percentage of revenues, cost of services remained at 12% in fiscal 2002 and 2001.

Selling, general and administrative expense. SG&A increased $2.6 million, or 14%, to $20.6 million in fiscal 2002 from $18.0 million in fiscal 2001. As a percentage of revenues, SG&A increased to 19% in fiscal 2002 from 18% in fiscal 2001.

Amortization. Amortization of intangibles increased $6.0 million, or 14%, to $49.3 million in fiscal 2002 from $43.3 million in fiscal 2001. The increase was primarily attributable to growth in our purchased subscriber accounts through our authorized dealer program, partially offset by the elimination of goodwill amortization for fiscal 2002 ($773,000 in fiscal 2001).

41

Interest expense. Interest expense decreased $7.0 million, or 25%, to $21.0 million in fiscal 2002 from $28.0 million in fiscal 2001. The decrease was primarily due to lower average interest rates for borrowings in fiscal 2002 as compared to fiscal 2001.

Net income (loss). Net income increased $4.4 million to $2.8 million in fiscal 2002 from a loss of $1.6 million in fiscal 2001. The increase was principally attributable to favorable interest rates for borrowings in fiscal 2002 as compared to fiscal 2001.

Liquidity and Capital Resources

General. Our operating strategy requires the availability of significant funds to finance growth through subscriber account purchases. Additional cash requirements include debt service and capital expenditures. We have financed our growth from a combination of long-term borrowings, issuance of preferred stock and cash flows provided by operations.

Major components of our working capital include accounts receivable, deferred revenue, purchase holdbacks and accrued interest payable. We expect to experience negative working capital in the future primarily due to accrued interest payable and purchase holdbacks. Purchase holdbacks are dependent on the number of subscriber accounts we purchase and the percentage of the purchase price we withhold to ensure a dealer’s obligation during the guarantee period. Accrued interest payable is dependent on the level of our debt and the timing of interest payments.

As of March 31, 2004 and the fiscal years ended 2003, 2002 and 2001, we had working capital deficits of $19.7 million, $11.9 million, $6.7 million and $28.0 million, respectively.

The increase in our working capital deficit from June 30, 2003 to March 31, 2004 was primarily due to higher accounts payable, deferred revenue and interest payable partially offset by an increase in cash and cash equivalents. Accounts payable was $5.1 million as of March 31, 2003 compared to $1.9 million at June 30, 2003. The increase in accounts payable was primarily related to a $3.5 million payable related to account purchases at quarter end. Deferred revenue was $5.2 million as of March 31, 2004 compared to $3.2 million at June 30, 2003. The increase in deferred revenue was primarily due to increases in collections for services to be provided in the following period. Interest payable was $2.9 million as of March 31, 2003 compared to $0.8 million at June 30, 2003. The increase in interest payable was primarily due to accrued interest payable related to the issuance of $160 million in senior subordinated notes on August 25, 2003, for which interest is payable on March 1 and September 1. The working capital deficit was partially offset by cash and cash equivalents increasing from $0.3 million as of June 30, 2003 to $1.5 million as of March 31, 2004. The increase in cash was primarily a result of significant customer deposits on the last day of the quarter that would be used to pay down future debt.

The increase in our working capital deficit from June 30, 2002 to June 30, 2003 was primarily due to an increase in purchase holdbacks from $5.8 million to $9.0 million, respectively. Purchase holdbacks grew significantly during the fiscal years ended June 30, 2003, reflecting increases in account purchase activity and a modest increase in the percentage withheld from the purchase price of each subscriber monitoring contract.

The decrease in our working capital deficit from June 30, 2001 to June 30, 2002 was primarily due to our $20.8 million of current debt as of June 30, 2001 which was subsequently repaid through the restructuring of our debt facility in fiscal 2002.

Net cash provided by operating activities for the nine months ended March 31, 2004 was $58.4 million, as compared to $43.9 million for the nine months ended March 31, 2003. The increase in cash provided by operating activities for the nine months ended March 31, 2004 primarily resulted from growth in our subscriber base and the resulting increased revenues. Net cash provided by operating activities for fiscal 2003 was $60.0 million, as compared to $48.3 million for fiscal 2002 and $37.1 million for fiscal 2001. The significant

42

increase in cash provided by operating activities for fiscal 2003 and 2001 primarily resulted from growth in our subscriber base and the resulting increased revenues. For fiscal 2002 the significant increase in cash provided by operating activities primarily resulted from growth in our subscriber base and lower interest expense.

Net cash used in investing activities for the nine months ended March 31, 2004 was $82.9 million, compared to $76.1 million for the nine months ended March 31, 2003. Net cash used in investing activities for fiscal 2003 was $107.7 million, compared to $81.7 million for fiscal 2002 and $95.7 million for fiscal 2001. For the nine months ended March 31, 2004 and March 31, 2003 and fiscal 2003, 2002 and 2001, capital expenditures were $1.0 million, $0.7 million, $1.2 million, $2.4 million and $2.8 million, respectively. Capital expenditures were primarily for our equipment for our central monitoring station, telephone systems, computer systems and refurbishment of offices. Annual capital expenditures are expected to vary based on the growth of our subscriber account base. Purchases of subscriber accounts consist of all direct external payments associated with the purchase of subscriber accounts. The portion of the purchase holdback paid to dealers at the end of the guarantee period is included in this amount when paid. For fiscal 2003, we significantly increased account purchases through our nationwide dealer program. For the nine months ended March 31, 2004 and March 31, 2003 and fiscal 2003, 2002 and 2001, purchases of subscriber accounts were $81.9 million, $75.4 million, $106.5 million, $79.3 million and $92.9 million, respectively. During fiscal 2002, we slowed our account acquisition program in advance of a recapitalization.

Our net cash provided by financing activities for the nine months ended March 31, 2004 was $25.6 million, compared to $32.3 million for the nine months ended March 31, 2003. Our net cash provided by financing activities for fiscal 2003 was $48.0 million, compared to $33.4 million for fiscal 2002 and $58.5 million for fiscal 2001.

As of March 31, 2004, we had $201.4 million outstanding under our credit facility, bearing interest at a weighted average rate for the nine months ending , March 31, 2004 of approximately 5.6% per annum, and we had approximately $117.7 million in borrowing availability under our revolving credit line, limited by certain provisions of our credit facility. In addition, as of March 31, 2004 we had $180.7 million in principal amount outstanding of senior subordinated and subordinated notes.

Since inception we have raised approximately $106.8 million of gross cash proceeds from the issuance of 10.7 million shares of preferred stock to private investors. These equity funds have been utilized to fund the growth of operations and assist with acquisitions. We are obligated to accrue cumulative dividends on each series of our preferred stock at varying rates, but we are prohibited from paying these dividends under the terms of our credit facility and the indenture governing the notes if an event of default exists or would result from such payment. Accordingly, we do not expect to pay any of the dividends over the next one to three years.

On August 25, 2003, we issued $160.0 million of senior subordinated notes at 11.75% with a maturity date of September 1, 2010. Interest payments are to be made semi-annually in cash in arrears on March 1 and September 1 of each year beginning on March 1, 2004. In accordance with the registration rights agreement associated with these notes, we began accruing special interest on the senior subordinated notes as of March 22, 2004 because the exchange offer registration statement had not been declared effective as of that date. Such special interest shall accrue up to but not including the date that the registration statement is declared effective. Special interest is accruing at a rate of 0.25% per annum during the 90-day period including and following March 22, 2004 and shall increase by an additional 0.25% per annum in each successive 90-day period, but in no event shall such rate exceed 1.5% per annum.

Further on August 25, 2003, we entered into a new credit facility agreement comprised of a $175.0 million term loan that matures in fiscal 2010 and a $145.0 million revolving credit facility that matures in fiscal 2009. Payments under the term loan are payable in quarterly installments from December 31, 2003 through June 30, 2009. The quarterly payment is calculated based upon the amount of the original facility multiplied by 0.25% for the quarters ended December 31, 2003 through September 30, 2006, 1.25% for the quarters ended December 31,

43

2006 through September 30, 2007 and 3.00% for the quarters ended December 31, 2007 through June 30, 2009 with the remaining balance due at maturity. We used the borrowings primarily to repay our prior credit facility, to repay all of our $12 million 12% senior subordinated notes due June 30, 2007, and to repurchase $20.5 million principal amount of our 14.5% subordinated notes due March 1, 2010 at a repurchase price of approximately $23.2 million. As a result of the repayments, we expensed our previously capitalized deferred financing costs totaling $6.0 million and recognized a pre-tax loss of $2.7 million in the repurchase of the subordinated notes. In connection with our August 2003 refinancing, we amended the terms of our subordinated notes to extend the maturity date of the remaining $20.5 million principal amount from January 18, 2009 to March 1, 2010. Prior to the amendment, interest accrued on the subordinated notes at 13.5% per annum with interest payable semi-annually in cash at a rate of 12% per annum with the remaining 1.5% interest per annum added to the outstanding principal amount of the subordinated notes. The 1.5% per annum interest rate increased to 2.5% per annum on December 15, 2003 and the increased rate applies retroactively to August 25, 2003.

In May 2004, we received approval from the Internal Revenue Service to change our tax method of accounting for a substantial portion of our subscriber accounts. We previously amortized all of our subscriber accounts for tax purposes over a 15-year period. Under the new method, we will amortize a substantial portion of our subscriber accounts over a 10-year period. As a result, we requested a refund of federal income taxes paid for our tax years ended June 30, 2003 and June 30, 2001 and a portion of the federal income taxes paid for our tax period ended June 30, 2002. The requested refund amount was $17.6 million, of which we received $9.3 million in June 2004. The entire refund is subject to routine audit by the Internal Revenue Service. On July 19, 2004, we received notification from the Internal Revenue Service that an audit would be conducted.

We will require substantial cash flow to fully implement our business strategy and meet our principal and interest obligations with respect to the senior subordinated notes and our other indebtedness. We anticipate that cash flow generated from operations and borrowings under our new credit facility, will provide sufficient liquidity to fund these requirements for the foreseeable future. We used the net proceeds from the August 2003 offering of our senior subordinated notes, together with borrowings under our new credit facility, to repay amounts outstanding under our old credit facility. Following the August 2003 refinancing, we continue to have significant borrowing capacity under our new credit facility. This increased capacity coupled with anticipated cash flow from operations is expected to meet and satisfy our short-term obligations.

We further preserve our borrowing capacity by following a cash management practice of maintaining as low as possible ongoing cash balance. However, our ability to meet our debt service and other obligations depends on our future performance, which in turn is subject to general economic conditions and other factors, certain of which are beyond our control. If we are unable to generate sufficient cash flow from operations or otherwise to comply with the terms of the indenture governing the senior subordinated notes or our other debt instruments, we may be required to refinance all or a portion of our existing debt or obtain additional financing. Further, the agreements or indentures governing our new credit facility, our senior subordinated notes and subordinated notes contain financial covenants relating to capital expenditure limits, maximum total debt to annualized quarterly EBITDA, maximum total senior debt to annualized quarterly EBITDA, interest coverage and fixed charge coverage that may impact our ability to refinance all or a portion of our existing debt or obtain additional financing.

Scheduled maturities (as defined) of long-term debt at March 31, 2004, utilizing the required payment schedule of the senior subordinated notes and our new credit facility, are as follows (dollars in thousands):

Contractual Cash Commitments	2004		2005		2006		2007		2008		Thereafter		Total
Long-Term Debt Obligations	$	438	$	1,750	$	1,750	$	7,000	$	17,937	$	353,224	$	382,099
Operating Lease Obligations	$	127	$	493	$	262	$	23	$	—	$	—	$	905
Total	$	565	$	2,243	$	2,012	$	7,023	$	17,937	$	353,224	$	383,004

44

Critical Accounting Policies

Our discussion and analysis of results of operations and financial condition are based upon our financial statements, which have been prepared in accordance with generally accepted accounting principles (“GAAP”). The preparation of financial statements in accordance with GAAP requires management to use judgment in making estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and disclosure of contingent assets and liabilities. We base our estimates and assumptions on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. These estimates and assumptions are evaluated on an ongoing basis. Due to the nature of certain assets and liabilities, there are uncertainties associated with some of the judgments, assumptions and estimates which are required to be made. Reported results could have been materially different under a different set of assumptions and estimates for certain accounting principle applications.

Note 1 of the notes to our financial statements included elsewhere in this prospectus includes a summary of significant accounting policies and methods used in the preparation of our financial statements. The following is a brief description of the more significant accounting policies and methods.

Long Lived Assets—Subscriber Accounts. Subscriber accounts relate to the cost of acquiring portfolios of monitoring service contracts from independent dealers. The subscriber accounts are recorded at cost. All direct external costs associated with the purchase of subscriber accounts are capitalized. Internal costs, including all personnel and related support costs, incurred solely in connection with subscriber account acquisitions and transitions are expensed as incurred. The cost of subscriber account pools are amortized using the 10-year 135% declining balance method. Subscriber accounts are amortized in pools because of the accounts’ homogeneous characteristics resulting primarily from the extremely disciplined due diligence program that we have implemented in which a contract must meet certain purchase criteria before we will purchase that account. All of our customers contract for essentially the same service and we are consistent in providing that service regardless of the customers’ locations.

A 10-year 135% declining balance amortization method was selected to provide a matching of amortization expense to individual subscriber revenues based on historical performance of our subscriber base. The realizable value and remaining useful lives of these assets could be impacted by changes in subscriber attrition rates, which could have an adverse effect on our earnings.

In October 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 144 (SFAS 144), Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS 144 addresses accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS 121 and Accounting Principles Board Opinion No. 30, Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. SFAS 144 establishes a single accounting model for long-lived assets to be disposed of by sale and resolves implementation issues related to SFAS 121. In accordance with SFAS 144, management reviews the subscriber accounts for impairment or a change in amortization period whenever events or changes indicate that the carrying amount of the asset may not be recoverable or the life should be shortened. For purposes of recognition and measurement of an impairment loss, we view subscriber accounts as a single pool because of the assets’ homogeneous characteristics, which is the lowest level for which identifiable cash flows are largely independent of the cash flows of the other assets and liabilities. If management determines that an impairment has occurred, it writes the subscriber accounts down to their fair value.

Income Taxes and Deferred Tax Assets. As part of preparing our financial statements, significant management judgment is required in determining our provision for income taxes and our deferred tax assets and liabilities. This process involves us estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items, especially the amortization of subscriber accounts, which are amortized using a 10-year 135% declining balance method for financial reporting purposes and are amortized

45

using a 15-year straight-line method for tax purposes. These differences have resulted in deferred tax assets totaling $37.5 million at March 31, 2004.

Since there is no absolute assurance that these assets will be ultimately realized, management periodically reviews our deferred tax position to determine if it is more likely than not that such assets will be realized. Such periodic reviews include, among other things, the expected timing when certain assets will be realized and our expected future earnings. If, after conducting such a review, management determines that the realization of the tax asset does not meet the “more-likely-than-not” criteria, an offsetting valuation allowance is recorded, thereby reducing net earnings and the deferred tax asset in that period. No valuation allowance has been established because of the expectation that it is more likely than not that these deferred tax assets will be realized.

Goodwill. As of March 31, 2004 we had goodwill of $14.8 million, which represents 2.9% of our total assets. We test goodwill annually for impairment and record an impairment charge if the carrying amount exceeds the fair value. We use a discounted cash flow approach as well as other methods to determine the fair value used in our test for impairment of goodwill. The results of this methodology depend upon a number of estimates and assumptions relating to cash flows, discount rates and other matters. Accordingly, such testing is subject to certain uncertainties, which could cause the fair value of goodwill to fluctuate from period to period.

We performed our annual goodwill impairment analysis as of June 2003. This analysis used a fair-value based approach and resulted in no impairment of goodwill. In the event that we are not able to achieve expected cash flow levels, or other factors indicate that goodwill is impaired, we may need to write off all or part of our goodwill, which would adversely impact our operating results and financial position.

Quantitative and Qualitative Disclosures About Market Risk

We have interest rate risk, in that borrowings under our credit facility are based on variable market interest rates. As of March 31, 2004, we had $201.4 million of variable rate debt outstanding under our credit facility. Presently, the revolving credit line bears interest at a rate of prime plus 3.0% or LIBOR plus 4.0%, with the term loan at a rate of prime plus 3.5% or LIBOR plus 4.5%. To control our exposure to interest rates under our facility, we utilize interest rate caps as required by our credit facility. As of March 31, 2004, these interest rate caps provided that the interest rate on approximately $145 million of borrowings under our credit facility cannot exceed an interest rate of 10%. A hypothetical 10% increase in our credit facility’s weighted average interest rate of 5.6% per annum for the nine months ending March 31, 2004 would correspondingly decrease our earnings and operating cash flows by approximately $0.6 million.

Our privately issued $20.5 million subordinated notes due March 1, 2010 have a fixed interest rate of 14.5%, but have exposure to changes in the debt’s fair value. In connection with our August 2003 refinancing, we amended the terms of these subordinated notes to extend the maturity date from January 18, 2009 and to increase the interest rate from 13.5% per annum to 14.5% per annum. In addition, we issued $160.0 million aggregate principal amount of our senior subordinated notes due September 10, 2010 with a fixed interest rate of 11.75%, which has exposure to changes in the debt’s fair value.

Recent Accounting Pronouncements

In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51. FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in an entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 requires application of the interpretation to all entities subject to the interpretation no later than the beginning of the first reporting period that begins after December 15, 2004. FIN 46 is effective immediately for all new variable interest entities created or acquired after December 31, 2003. The adoption of FIN 46 is not expected to have a material impact on our financial position or on our results of operations.

46

In May 2003, the FASB issued Financial Accounting Standards No. 150 (SFAS 150), Accounting For Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS 150 established standards for how an issuer classifies and measures in its statement of financial position certain financial instruments with characteristics of both liabilities and equity. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first fiscal period beginning after December 15, 2003 and must be applied prospectively by reporting the cumulative effect of a change in an accounting principle for financial instruments created before the issuance date of SFAS 150 and still existing at the beginning of the interim period of adoption which is July 1, 2004. We are evaluating the impact of SFAS 150 as a result of the recapitalization transaction that occured on July 14, 2004. We do not expect SFAS 150 to have a significant impact on our financial statements.

47

BUSINESS

Overview

We are a leading national provider of security alarm monitoring services based on gross revenue, with the ability to monitor signals from nearly all types of security systems. We monitor signals arising from burglaries, fires and other events for over 425,000 subscribers under contracts that are typically three years in duration and have automatic annual renewal provisions during which the subscriber may cancel the contract upon 30 days’ written notice. Through these contracts, our high quality subscriber base provides us with high margin, monthly recurring revenues that result in predictable and stable cash flow. Our business model differentiates us from other security alarm companies. We utilize our exclusive nationwide dealer network to sell and install the security systems we monitor. We purchase monitoring contracts from these dealers and provide our subscribers with a full spectrum of security alarm services including monitoring services, customer service and technical support. We dispatch our dealers to provide on-site technical service to subscribers, which they require, on average, only once every six years due to our ability to resolve a significant percentage of our subscribers’ technical inquiries over the telephone. For the fiscal year ended June 30, 2003 and the nine months ended March 31, 2004, we generated revenues of $126.4 million and $111.2 million, operating income of $29.6 million and $27.0 million, net income/(loss) of $3.8 million and $(4.8) million and EBITDA of $88.8 million and $79.8 million, respectively. At March 31, 2004, we also had an accumulated deficit of $67.7 million. Although EBITDA is not a financial measure that complies with generally accepted accounting principles in the United States, we believe it is a key performance measure used in the security alarm monitoring industry and is one of the financial measures, subject to adjustments, by which our covenants are calculated under the agreements governing our debt obligations. We have provided a reconciliation of EBITDA to net income in footnote 7 of “Selected Historical Financial Data” on page 37 of this prospectus.

We purchase monitoring contracts from our dealer network only after a comprehensive examination of the dealers, the subscribers and the contracts. We conduct thorough due diligence on our dealers to ensure we are partnering with reliable dealers that can consistently provide us with high quality accounts. We perform extensive due diligence on our subscribers to maintain our high quality subscriber base. Our subscribers are geographically diversified in 45 states and are primarily homeowners, whom we believe are more likely than renters to maintain long-term accounts with us. We believe our rigorous account acquisition due diligence process results in a subscriber base that is less likely to terminate monitoring contracts with us, thereby improving contract life and lowering attrition. We also believe that we maximize retention of our subscribers through our dedication to providing our high quality subscriber base with high quality customer service.

Our contracts with our dealers and subscribers result in a stable, recurring revenue base. We have exclusive agreements with approximately 400 dealers in more than 40 states. Through these agreements, we typically have rights of first refusal to purchase all monitoring contracts sold by the dealers for three years. Our subscriber contracts are typically three years in duration, have automatic annual renewal provisions during which the subscriber may cancel the contract upon 30 days’ written notice and allow for periodic rate increases. To protect us against the loss of the investment associated with acquiring subscriber accounts, we require our dealers to guarantee the accounts against cancellations, typically for a period of 12 months following the date of purchase. If an account is canceled during the guarantee period, the dealer must compensate us for the lost monthly recurring revenue and either replace the account or refund the purchase price associated with the account. To help ensure the dealers’ obligations under the guarantee, we typically withhold a portion of the purchase price of each contract we purchase.

According to Security Distribution & Marketing, or SDM, a leading industry publication based on circulation, the electronic security market, which consists of the sale, lease, installation, service and monitoring of security systems, generated total revenues of approximately $24.1 billion in 2003, an increase of 8.2% from 2002. Total industry revenues have increased in each of the last 10 years and have grown at an annual rate of 8.0% in that period. Monitoring services accounted for approximately $4.6 billion, or 19.0%, of total industry revenue in 2003. We believe that a number of factors have contributed to this increase, including heightened

48

concern about crime, discounts given by insurance companies to homeowners with security systems, the installation of security systems as part of new home construction, the aging of the population in general and an increase in the number of two-income families resulting in more children being left at home alone. In addition, we believe industry revenues will continue to grow in weak economic times because of the increased crime levels that are generally experienced in those periods and the minimal net cost of owning a security system after accounting for the lower premiums charged by insurance companies. Despite the steady growth of the security industry and increased demand for security services, the percentage of homes with dealer-installed security systems is expected to reach 23.5% in 2005 according to the “Home Security Update—Security System Forecasts: 2005 and Beyond” by Parks Associates, an independent market research and consulting firm. Parks Associates estimates that the penetration rate of dealer-installed security systems will increase to approximately 36% by 2012. However, because of the growth in new homes built over that period, the number of homes without monitored security systems is projected to drop by only approximately 1% on a compounded annual basis. As a result, despite a substantial increase in the penetration rate, the size of our potential market will remain significant.

Our Strengths

We believe our focused business model differentiates us from other security alarm companies. We focus on providing monitoring services to our subscribers, which we believe is a higher margin business than selling and installing security alarm systems. Consequently, we are able to grow our subscriber base without employing a national sales and installation force. We also outsource on-site technical support to our dealer network, further reducing our cost structure and infrastructure requirements. Our differentiated business model results in recurring high margin revenue streams. In addition to revenues of $126.4 million and $111.2 million that we generated for the fiscal year ended June 30, 2003 and the nine months ended March 31, 2004, we had an accumulated deficit at March 31, 2004 of $67.7 million.

Recurring Revenue. For the twelve months ended March 31, 2004, approximately 97% of our revenues consisted of recurring monthly payments under security alarm monitoring contracts. Our contracts are typically three years in duration, have automatic annual renewal provisions during which the subscriber may cancel the contract upon 30 days’ written notice and allow for periodic rate increases. Our dealer contracts provide that if a subscriber cancels prior to the initial twelve-month period of the contract, the dealer must replace the lost monthly revenue attributable to the canceled contract and either replace the lost account or refund our purchase price for the account.

Cash Flow Generated By Subscribers. Once we acquire a subscriber contract, our recurring revenue streams generate strong cash flow as a result of our high margins and the minimal capital expenditures they require. We believe this strong cash flow is due to several factors:

• Our operations are focused on providing high margin monitoring services to subscribers. We utilize our dealer network to sell and install security alarm systems, which we believe is a lower margin business. As a result, we do not employ a large national sales and installation force.

• We have a proprietary centralized information system that has enabled us to satisfy 86% of our subscribers’ technical inquiries over the telephone. If a field service call is required, we outsource the service to a member of our national network of independent service dealers. Consequently, we avoid the costs associated with employing service technicians and maintaining the infrastructure required to provide these services ourselves.

• We provide all services, including monitoring, 24-hour telephone support, data entry, remote services and billing, from a single location. We believe this centralized operation allows us to maximize our economies of scale.

Account Acquisition Program. Since inception, we have implemented a disciplined account acquisition program focused on balanced growth, profitability and return on investment. The core of our account acquisition process is an extensive examination of every subscriber prior to acquisition, including a credit score report, proof of first month’s payment and, in substantially all cases, a telephonic survey of the subscriber’s satisfaction with

49

its security system. We also conduct diligence on our dealers through a comprehensive six-step process to qualify them for participation in our program, including legal and background checks, as well as references from industry participants. We believe that this approach reduces the likelihood that a subscriber will terminate its contract with us, thereby maximizing retention of our subscribers and our return on investment.

Customer Service. We believe we provide our subscriber base with high-quality service through our rapid response to alarm signals, fast handling of support calls and quick solutions to subscriber issues. We have developed a proprietary information system that quickly and accurately makes available to our operators a substantial amount of technical information regarding our subscribers and their security systems. This system enables us to resolve 86% of our subscribers’ technical requests over the telephone, resulting in quick customer service, fewer false alarms and higher subscriber satisfaction. To ensure we maintain our high level of customer service, our system tracks key factors that contribute to service quality such as response time and call duration. We also monitor the quality of our services with regular operator evaluations, customer satisfaction forms and follow-up quality assurance calls.

Management Team. Many of our executive officers have been with us since our inception in 1994 and have significant prior experience in related industries. Many of our executive officers possess technical backgrounds, which we believe contribute to the highly analytical approach we have developed for analyzing accounts and dealers. As a group, our executive officers have approaching 100 years of security alarm industry experience. Our executive officers also have an average of over 25 years of experience in management positions and an average tenure with us of over eight years.

Business Strategy

The key components of our operating strategy are listed below.

Maximize Subscriber Retention. We seek to maximize subscriber retention by continuing to acquire high quality accounts and to increase the average life of an account through the following initiatives:

• Maintain the high quality of our subscriber base by continuing to implement our highly disciplined account acquisition program;

• Continue to incentivize our dealers to sell us only high-quality accounts by requiring a twelve-month guarantee and purchase price holdback requirements;

• Provide superior customer service on the telephone and in the field; and

• Actively identify subscribers who are relocating, the number one reason for account cancellations, and target retention of such subscribers.

Maximize Economics of Business Model. As we continue to grow our subscriber base, we believe the attractiveness of our business model will increase. Due to the scalability of our operations and the fixed costs inherent in our cost structure, we believe our margins will increase as these costs are spread over larger recurring revenue streams. We believe our cash flows will also benefit from our continued efforts to increase subscriber retention rates and reduce response times, call duration and false alarms. In addition, we have begun requiring dealers to charge subscribers an alarm activation fee. This fee offsets the account purchase price we pay to the dealers thereby reducing our net account acquisition costs.

Expand Our Network of Dealers. To enter a new market or increase penetration in an existing market without incurring the costs of establishing a physical presence there, we plan to expand our dealer network by targeting dealers that can benefit from our dealer program services and who can generate high quality subscribers for us. We believe we are an attractive partner for dealers for the following reasons:

• We provide our dealers with a full range of services designed to assist them in all aspects of their business, including sales training, comprehensive on-line account access, detailed weekly account summaries, sales support materials and discounts on security system hardware purchased through our strategic alliances with security system manufacturers;

50

• We allow individual dealers to retain local name recognition and responsibility for day-to-day sales and installation efforts, thereby supporting the entrepreneurial culture at the dealer level and allowing us to capitalize on the considerable local market knowledge, goodwill and name recognition of our dealers; and

• Because we do not install or sell security systems, we do not compete against the dealers from whom we purchase contracts.

Operations

Dealer Program

Our authorized independent dealers are typically single-location businesses that sell and install alarm systems but do not provide monitoring services. There are in excess of 14,000 independent dealers located throughout the U.S. We target those dealers that serve local markets and typically install 30 to 40 systems per month. These dealers focus on the sale and installation of security systems and generally do not monitor the systems due to the large capital expenditures required to build a monitoring station. These dealers typically outsource the monitoring function or sell the contracts to companies who have built monitoring stations. We have the ability to monitor signals from nearly all types of residential security systems. We generally enter into exclusive contracts with these dealers under which the dealers sell and install security systems and we have a right of first refusal to purchase the associated alarm monitoring contracts. We seek to attract dealers from throughout the U.S. rather than focusing on local or regional markets in order to maximize our revenues.

Our typical dealer contract is an exclusive contract with an initial term of three years and automatic successive one-year renewal periods. The purchase price that we pay for a subscriber account purchased from a dealer is primarily a function of the monthly recurring revenue generated by that account as well as several other factors, including:

• our prior experience with accounts purchased from the dealer;

• the number of accounts purchased; and

• the type of security equipment used by the subscriber.

To protect us against the loss of acquired subscriber accounts, we typically require the dealer to provide guarantees against cancellations, both on an account and revenue basis, for a period following the acquisition. Presently, the guarantee period is typically one year from the date of purchase. In addition to requiring a guarantee period from a dealer, we usually withhold a designated percentage of the purchase price when we purchase subscriber accounts from a dealer. If a subscriber account is canceled or stops regular payments during the guarantee period, a replacement subscriber account must be delivered by the dealer or a portion of the holdback amount is retained by us to offset the lost monthly recurring revenue and our initial investment in the defaulted subscriber account. At the end of the guarantee period, the dealer is paid the balance of the holdback amount or is liable for any deficit.

As part of our strategy, the independent dealer is responsible for the sale and installation of the security system, and we provide monitoring services and customer and technical support. Because we do not compete with our dealers for system sales, installations and services, our dealers have the ability to maintain their identity in their respective markets and generate additional revenues from add-on sales and repair services. We believe that the ability of a dealer to capitalize on our name recognition and reputation positively impacts a dealer’s ability to obtain referrals for additional subscribers.

We provide a full range of services designed to support the success of our dealers. In addition to providing sales and business training, we provide dealers with access to account information over the Internet, detailed electronic weekly reports summarizing account purchase activity and accurate and timely information concerning their account replacement status and financial position. See “Management Information Systems.” We provide

51

dealers with standardized sales and monitoring contracts, window decals, yard signs and other sales support materials. This provides us with an opportunity to increase our brand name awareness by pairing the Monitronics name and logo with the dealers’ names.

Due Diligence

In evaluating the quality of potential participants in our dealer program, we conduct an internal due diligence review and analysis of each dealer using information obtained from third party sources. This process includes:

• lien searches and reference checks on the dealer; and

• a review of the dealer’s licensing status and creditworthiness.

We believe our profitability is largely dependent on the quality of the accounts we purchase. Once we approve a dealer for participation in our authorized dealer program, we conduct a review of the accounts to be purchased from the dealer. This process includes:

• subscriber credit reviews;

• telephone surveys to determine subscribers’ overall satisfaction with their security systems;

• proof of first month’s payment;

• an individual review of each alarm monitoring contract; and

• confirmation that the customer is a homeowner.

We also verify that each monitored system has been programmed to our central monitoring station prior to purchase.

Following our purchase of a subscriber account, the subscriber receives a letter from us explaining the sale and transition and providing brochures, service instructions, window decals and other materials with the Monitronics name. We believe that this activity reinforces and enhances subscriber identification with Monitronics as the service provider, increases Monitronics’ brand name recognition, helps to ensure timely payments to us during and immediately following the transition period and helps to maintain overall subscriber satisfaction.

Monitoring Services

Security systems include devices installed at subscribers’ premises that are designed to detect and react to various occurrences or conditions, such as an intrusion or the presence of fire or smoke. These devices are connected to an electronic control panel that communicates through telephone lines to our central monitoring station. In most security systems, control panels can identify the nature of the alarm and the areas within a home or building where the system was activated and can transmit this information to the central monitoring station. The basic security system sold and installed by our dealers varies, but may include protection of the front and back doors of a home, one or more accessible windows, one interior motion detection device, a control panel with the ability to communicate signals to our central monitoring station, a panic button, a siren, window decals and a yard sign. The subscriber may elect to purchase additional equipment from the dealer customized to the subscriber’s specific needs. Such equipment add-ons include additional perimeter and interior protection, fire protection devices (heat and smoke detectors), environmental protection devices (freeze sensors and water detectors), additional panic buttons, two way voice monitoring and home automation devices (lighting or appliance controls).

Our subscriber contracts have initial terms that are generally three years, and provide for automatic annual renewals during which the subscriber may cancel the contract upon 30 days’ written notice.

52

We monitor all of our subscriber accounts at our central monitoring station in Dallas, Texas. The central monitoring station employs advanced telecommunications and computer systems that route incoming alarm signals and telephone calls to operators. Each operator is seated in front of a computer terminal that provides immediate information concerning the nature of the alarm signal, the subscriber whose alarm has been activated and the location of the alarm signal. After receiving an alarm signal, our operators follow standard procedures to notify the subscriber or take other appropriate action. If the situation requires, our operators contact local emergency service providers. We do not dispatch our own alarm response personnel to the subscriber’s premises.

Our central monitoring station can provide two-way voice monitoring in addition to standard alarm monitoring services. In the event of an alarm activation, two-way voice monitoring enables our operator to listen and speak to persons at the monitored premises from the service center through speakers and microphones located within the premises. This feature allows our personnel to verify if an emergency exists, to reassure the subscriber and, if needed, to expedite the response of local emergency service providers, even if the subscriber is unable to reach a telephone. Two-way voice monitoring capability also assists us in quickly determining if the alarm was activated inadvertently, thereby reducing the number of false dispatches and potential fees or penalties assessed by state and local jurisdictions against both the subscriber and us. We believe that we are one of the leading providers of two-way voice monitoring services in the country. At March 31, 2004, approximately 20% of our subscriber accounts used two-way voice monitoring services.

We also provide third-party contract monitoring services to independent dealers through our central monitoring station. These dealers retain ownership of the monitoring contracts but, because they do not have their own monitoring capability, they subcontract monitoring services to us. The dealers are responsible for every other aspect of the relationship with customers, including billing and field repair service. We provided third-party contract services for approximately 40,000 subscriber accounts as of March 31, 2004. For the twelve months ended March 31, 2004, revenues from third-party contract monitoring services totaled $1.9 million, representing approximately 1.3% of our revenues. Our third-party contract monitoring service provides us with an additional source of revenues and prospective acquisition targets. Independent dealers who subcontract monitoring services to us are familiar with the quality of our monitoring and related services, an important consideration for a prospective seller of subscriber accounts.

Our central monitoring station is UL listed as a protective signaling service station. A central monitoring station earns and maintains a UL listing through a series of ongoing inspections and operational tests. UL specifications for protective signaling service stations include building integrity, back-up computer and power systems, adequate staffing and standard operating procedures. In many jurisdictions, applicable law requires the security alarms for certain buildings to be monitored by a UL listed facility. In addition, such listing is required by certain commercial subscribers’ insurance companies as a condition to insurance coverage or by residential subscribers’ insurance companies as a requirement for insurance discounts. Our telephone systems utilize high capacity, high quality, digital circuits backed up by conventional telephone lines.

Our central monitoring station operates 24 hours per day, 365 days a year. Each operator completes 120 hours of formal classroom training provided by us at our headquarters. This training is designed to teach the operator the proper operating procedures to respond to alarms and to familiarize the operator with the software used to monitor security systems, types of signals received and types of security systems commonly installed in subscribers’ homes and businesses. Upon completion of classroom training, operators must pass an examination administered by us before beginning a 90-day supervised on-the-job training program.

Customer and Technical Service

We believe that we can increase customer satisfaction and retention by directly controlling customer and technical service. We maintain a national customer service center at our headquarters to handle all general inquiries from subscribers, including those related to subscriber information changes, basic alarm

53

troubleshooting, alarm verification, technical service requests and requests to enhance existing services. Customer service representatives also respond to dealer inquiries relating to subscriber accounts previously purchased or being contractually monitored by us.

To ensure that technical service requests are handled promptly and professionally, all requests for service are routed through the customer service center. Customer service representatives who are trained in the operation of installed security systems listen to the customer and determine the proper action to be taken. If the problem cannot be resolved by the customer service representative, the call is directed to a technical support representative with extensive technical training who will dial into the alarm panel through the telephone line and attempt to resolve the issue. We have a proprietary centralized information system that enables us to satisfy 86% of our customer technical inquiries over the telephone. If a field service call is required, we dispatch a member of our national network of independent service dealers. When we select service technicians, we first consider dealers within our authorized dealer program in order to provide them with an additional source of revenues, but if an authorized dealer fails to meet our repair standards, an independent service technician is dispatched. We monitor repair services with customer satisfaction forms and follow-up quality assurance calls.

Management Information Systems

We utilize software that fully integrates the central monitoring station, billing and collections, customer service and accounting functions. We use a number of customized management information systems to accumulate statistical data regarding dealers and subscribers and to support our monitoring, customer and technical services. We have developed a comprehensive portfolio management system and procedures that we use to:

• perform due diligence on new dealers and subscribers;

• assimilate new subscribers; and

• monitor the performance of each dealer and subscriber account.

This system and the procedures provide for an extensive due diligence review process that ensures the thoroughness and consistency of the review. The system also aids in the assimilation of new subscribers by providing a means to confirm that the new subscriber has been introduced to us, is provided with materials about us and receives follow-up customer satisfaction calls. The system also helps monitor dealer and subscriber account performance by providing management with timely information regarding potential problems.

We have developed a software program that allows a dealer to access our central monitoring station activity reports on a daily basis. Through another software program, we are able to verify system installation and connection to the central monitoring station prior to the purchase of a subscriber’s account.

Internet Websites

We operate two web sites. Monitronics.net serves both prospective and existing authorized dealers. Monitronics.com serves prospective and existing monitored customers.

Monitronics.net is a promotional tool that provides prospective dealers background on us as well as information on the benefits of our dealer program. As an information hub, monitronics.net provides tools to help current dealers manage their business and improve their productivity. Authorized dealers are able to review up-to-date subscriber account information, download forms, order marketing materials and stay current on the latest news and events regarding Monitronics.

Monitronics.com is our consumer web site that has informational as well as promotional features. For potential subscribers, the web site provides important things to consider when looking to purchase a monitored alarm system. The site positions Monitronics as the clear choice for fast response, accuracy, reliability and

54

service. For existing subscribers, the web site provides helpful information regarding our billing services, technical support, monitoring call center and response procedures. For both audiences, the site provides background about us as well as information on false alarm prevention.

Sales and Marketing

General

We believe that demand for security alarm systems is driven by a customer’s peace of mind regarding the safety of themselves, their family and their property. This demand is typically event driven, where some occurrence stimulates the customer’s concern and causes them to want to purchase an alarm system. Other factors, such as insurance discounts or requirements, may also add to the demand for a system. The purchase of an alarm system has the potential to satisfy the customer’s need for peace of mind for many years, and is a very infrequent purchase that may occur only a few times during a person’s life.

With the growing concern for safety, the U.S. market for alarm systems is increasing at an estimated rate of 8.2% per year, according to SDM’s 2004 Forecast Study. The percentage of homes with dealer installed security systems is expected to reach 23.5% in 2005 according to the “Home Security Update—Security System Forecasts: 2005 and Beyond” by Parks Associates, an independent market research and consulting firm. Because of minimal purchasing experience, consumers rely heavily on referrals from friends, family, neighbors and associates when selecting their alarm system.

We believe our nationwide network of authorized dealers is the most effective way for us to market alarm systems, due to the nature of the demand and the market characteristics described above. Our dealers are an integral part of the communities they serve, and they understand the desires of their market and how to best satisfy local needs. By combining the dealer’s local presence and reputation with our high quality service and support, we believe that these dealers will have success in growing their businesses and the number of our monitoring customers.

Agreements with dealers provide for our purchase of the dealer’s subscriber accounts on an ongoing basis. The dealers install Monitronics-approved alarm systems and arrange for subscribers to enter into a multi-year alarm monitoring agreement in a form acceptable to us. The dealer then submits this monitoring agreement to us for our due diligence review and purchase.

Dealer Network Development

Since our inception, we have focused on expanding our network of dealers in the U.S. To do so, we have established a dealer program that provides participating dealers with a variety of support services to assist them as they grow their businesses. Dealers can use the Monitronics brand name in their sales and marketing activities and on the products they sell and install. Our dealers benefit from their affiliation with us and our national reputation for high customer satisfaction, as well as the support they receive from us as authorized dealers. We also provide central station monitoring services on a subcontract basis for other independent alarm companies that do not have the capability to monitor systems for their customers. Authorized dealers benefit by generating operating capital and profits from the sale of their accounts to us. We also provide our dealers with sales literature, co-branded marketing materials, sales leads, private labeled security equipment, equipment purchase discounts, and management support. We believe that these services and cost savings would not be available to security alarm dealers on an individual basis.

Currently, we employ 15 sales representatives to promote the authorized dealer program, find account acquisition opportunities and sell our monitoring services. We target independent alarm dealers across the U.S. that can benefit from our dealer program services and can generate high quality monitoring customers for us. We use a variety of marketing techniques to promote our dealer program and our related services. These activities include direct mail, trade magazine advertising, trade shows, internet web site marketing, publicity and telemarketing.

55

In addition to the development of our dealer network, we occasionally acquire alarm monitoring accounts from other alarm companies on a one-time basis. Our management’s extensive experience in identifying potential opportunities and in negotiating previous account acquisitions helps facilitate the negotiation and execution of new acquisitions in a timely manner.

Dealer Marketing Support

We provide our authorized dealers with an extensive marketing support program. We focus on developing professionally designed sales and marketing materials that will help dealers market alarm systems and monitoring services with maximum effectiveness. Materials offered to authorized dealers include:

• sales brochures and flyers;

• yard signs;

• window decals;

• customer forms and agreements;

• sales presentation binders;

• door hangers;

• lead boxes;

• vehicle graphics;

• lobby signage;

• trade show booths; and

• clothing bearing the Monitronics brand name.

Our fulfillment center processes web site and telephone orders for these materials, which are made available to our dealers at prices that our management believes would not be available to dealers on an individual basis.

Our sales materials promote both the Monitronics brand and the dealer’s status as a Monitronics authorized dealer. Dealers typically sell and install alarm systems which display the Monitronics logo and telephone number, which further strengthens consumer recognition of their status as Monitronics authorized dealers. Our management believes that the dealers’ use of the Monitronics brand to promote their affiliation with one of the nation’s largest alarm monitoring companies boosts the dealers’ credibility and reputation in their local markets and also assists in supporting their sales success.

Customer Integration and Marketing

The customer’s awareness and identification of the Monitronics brand as the monitoring service provider is further supported by the distribution of Monitronics-branded materials by the dealer to the customer at the point of sale. Such materials may include Monitronics yard signs, brochures, instruction cards, and other promotional items. Monitronics’ dealers typically introduce customers to Monitronics in the home when describing Monitronics’ central station.

New customers are introduced to us through a program designed to maximize their awareness of, and satisfaction with, the Monitronics brand. Upon our purchase of a monitoring agreement from a dealer, the customer is sent a letter describing the sale, together with contact information regarding customer support, Monitronics window decals, Monitronics telephone number stickers, a monitoring service brochure, and a customer ID Card. All materials focus on the Monitronics brand and our role as the single source of support for the customer. Later, we contact each new customer by telephone in order to address any questions or concerns the customer may have, as well as to verify information about the customer. In addition, all billing statements are

56

issued under the Monitronics brand name in order to reinforce our support services, as well as provide special customer messages.

Our management believes the awareness and relationship management activities described above contribute to our reputation and recognition with consumers, and that these activities will increase the sales success of our authorized dealers in their local markets.

Competition

The security alarm industry is highly competitive and highly fragmented. We compete with major firms, including ADT Operations Inc., a subsidiary of Tyco International Ltd.; Protection One, Inc.; Brinks Home Security Inc., a subsidiary of The Brinks Company; and Honeywell Security, a division of Honeywell, Inc. In addition, we compete with numerous smaller providers. Certain other alarm service companies have adopted a strategy similar to ours that entails the aggressive purchase of alarm monitoring accounts both through acquisitions of account portfolios and through dealer programs.

Competition in the security alarm industry is based primarily on reputation for quality of service, market visibility, services offered, price and the ability to identify prospective dealers and subscriber accounts. We believe that we compete effectively with other national, regional and local alarm monitoring companies due to our reputation for reliable monitoring, customer and technical services, the high quality services and benefits we offer to dealers in our authorized dealer program, our low cost structure and our marketing alliances. However, we compete with several companies that have account acquisition and loan programs for independent dealers, and some of those competitors are larger than we are and have more capital than we do.

Regulatory Matters

A number of local governmental authorities have adopted or are considering various measures aimed at reducing the number of false alarms. Such measures include:

• subjecting alarm monitoring companies to fines or penalties for false alarms;

• imposing fines to alarm subscribers for false alarms;

• imposing limitations on the number of times the police will respond to alarms at a particular location after a specified number of false alarms; and

• requiring further verification of an alarm signal, such as visual verification, of an alarm signal before the police will respond.

Our operations are subject to a variety of other laws, regulations and licensing requirements of federal, state and local authorities. In certain jurisdictions, we are required to obtain licenses or permits, to comply with standards governing employee selection and training and to meet certain standards in the conduct of our business. Many jurisdictions also require certain of our employees to obtain licenses or permits.

The security industry is also subject to requirements imposed by various insurance, approval, listing and standards organizations. Depending upon the type of subscriber served, the type of security service provided and the requirements of the applicable local governmental jurisdiction, adherence to the requirements and standards of such organizations is mandatory in some instances and voluntary in others. See “Operations—Monitoring Services.”

57

Our alarm monitoring business utilizes telephone lines and radio frequencies to transmit alarm signals. The cost of telephone lines, and the type of equipment which may be used in telephone line transmission, are currently regulated by both federal and state governments. The operation and utilization of radio frequencies are regulated by the Federal Communications Commission and state public utility commissions.

Intellectual Property

We have a registered service mark for the Monitronics name and we have a service mark for the Monitronics logo. We own certain proprietary software applications that we use to provide services to our dealers and subscribers. We do not hold any patents or other intellectual property rights on our proprietary software applications.

Legal Proceedings

We experience routine litigation in the normal course of our business. We do not believe that any pending or threatened litigation will have a material adverse effect on our operations or financial position.

Employees

At March 31, 2004, we employed over 500 individuals. Currently, none of our employees are represented by a labor union or covered by a collective bargaining agreement. We believe that our relations with our employees are good.

Facility

Our present executive offices, central monitoring station and administrative offices consist of approximately 46,000 square feet, and are located in Dallas, Texas. We have entered into several leases with respect to this space with all leases expiring on December 31, 2005. On May 3, 2004, we entered into a new lease for our executive and administrative offices consisting of approximately 47,000 square feet located in Dallas, Texas adjacent to our current facility. The initial term of this lease is seven years with two five-year renewal option periods.

58

MANAGEMENT

Directors and Executive Officers

The following table sets forth information with respect to our directors and executive officers immediately after the July 2004 recapitalization. All directors are elected annually by our shareholders and serve until their successors are duly elected and qualified. Executive officers are elected by and serve at the will of our board of directors.

Name	Age	Position
James R. Hull	66	President, Chief Executive Officer and Chairman of the Board
Michael R. Meyers	47	Vice President, Chief Financial Officer and Assistant Secretary
Robert N. Sherman	57	Vice President, Operations, and Secretary
Stephen M. Hedrick	45	Vice President, Finance, and Treasurer
Michael D. Gregory	46	Vice President, Sales and Marketing
Barry P. Johnson	59	Vice President, Dealer Services
Rick L. Hudson	53	Vice President, Customer Services
Erik Brooks	38	Director
Jay M. Grossman	44	Director
Royce Yudkoff	48	Director
Brent Stone	27	Director
Blaine F. Wesner	40	Director

James R. Hull has served as president, chief executive officer and one of our directors since October 1994. Prior to that time, Mr. Hull served as a consultant to and subsequently, president of, My Alarm, Inc., a security alarm monitoring company in Dallas, Texas for approximately four years. During the same period, Mr. Hull also assisted in the establishment of Financial Security Services, Inc., a private company which provides collateralized financing to the security industry, and served as its chairman. Mr. Hull also served as president for approximately five years of Network Multi-Family Security, Inc., a private company in Dallas, Texas, which Mr. Hull helped build from a concept to a company monitoring approximately 150,000 security alarm systems installed in multi-family projects in 35 states. In addition, Mr. Hull has over 30 years of senior management experience at the vice president and general management levels with companies in the high-tech and consumer related fields such as Control Data Corporation, Litton Medical Systems, Inc. and Parker Pen Company. Mr. Hull holds a B.S. in electrical engineering.

Michael R. Meyers joined us as a vice president and chief financial officer in July 1996. Prior to joining us, Mr. Meyers served as treasurer and vice president of Tyler Corporation, a diversified public holding company. He also served as senior vice president of Forest City Auto Parts, a 65-store auto parts retail division of Tyler Corporation. Prior to that time, Mr. Meyers served as director of finance for a paging subsidiary operation of PacTel Personal Communications, a cellular and paging company. Mr. Meyers is a certified public accountant and has over 20 years of accounting, finance and operations experience with Fortune 500, medium and small companies. Mr. Meyers holds a B.A. in economics, a B.B.A. in business and an M.B.A.

Robert N. Sherman joined us as our vice president, operations, and secretary in October 1994. From 1991 to 1994, Mr. Sherman served as vice president of My Alarm, Inc. Prior to that time, Mr. Sherman served as vice president of Network Multi-Family Security, Inc., which Mr. Sherman helped build from a concept to a company monitoring approximately 150,000 security alarm systems installed in multi-family projects in 35 states. Mr. Sherman holds a B.S. in electrical engineering, a M.S. in computer science and an M.B.A.

Stephen M. Hedrick joined us as our vice president, finance, and treasurer in December 1994. Prior to joining us, Mr. Hedrick served as director of finance and accounting for Access Communication (acquired by Shared Technologies-Fairchild), a shared tenant telecommunications provider. Prior to that time, Mr. Hedrick

59

also served as vice president, finance and administration, for Terra Marine Engineering, Inc. (acquired by Geco-Prakla, a division of Schlumberger Limited), which developed a patented oil exploration technology. Mr. Hedrick is a certified public accountant and has over 20 years of accounting and business administration experience with both Fortune 500 and small, high-growth companies in the manufacturing, high-tech and telecommunications industries. Mr. Hedrick holds a B.B.A. in accounting.

Michael D. Gregory joined us as our vice president, marketing in February 1995. Prior to joining us, Mr. Gregory served as vice president of sales and marketing for Genstar Rentals, Inc. from 1993 to 1995. Prior to that time, Mr. Gregory was employed by GE Capital in various sales and marketing management positions. Mr. Gregory has 15 years experience in sales and marketing management and holds a B.S. in mechanical engineering and an M.B.A.

Barry P. Johnson joined us as director of dealer services in February 2000 and was promoted to vice president of dealer services in April 2001. Prior to joining us, Mr. Johnson was a financial planner with AXA Advisors from February 1999 to January 2000. In addition, from February 1983 to December 1998, Mr. Johnson served in positions such as production control manager and plant manager with Taylor Publishing Company. Mr. Johnson has over 30 years of business management experience and holds a B.B.A. and M.B.A.

Rick L. Hudson joined us in October 1995 as director of customer service and was promoted to vice president, customer services, in April 2001. Prior to joining us, Mr. Hudson served as director of service for Multi Technology Systems from 1993 to 1994 and director of service and installation for My Alarm, Inc. from 1991 to 1993. Prior to that time, Mr. Hudson served as vice president of customer services for Network Multi-Family. Mr. Hudson holds a B.S. in telecommunications.

Erik Brooks has served as a director since July 2004. Mr. Brooks is a principal of ABRY Partners LLC, a private investment equity firm, which he joined in 1999. Prior to joining ABRY, from 1995 to 1999, Mr. Brooks was a Vice President at NCH Capital, a private equity investment fund. Mr. Brooks is a director of Country Road Communications, LLC and Nexstar Broadcasting Group Inc.

Jay M. Grossman has served as a partner of ABRY Partners, LLC, a private equity investment firm, since April 1996. As general partner, Mr. Grossman initiates investment transactions and executes appropriate diligence and documentation. Prior to joining ABRY, Mr. Grossman was an investment banker specializing in media and entertainment at Kidder Peabody and at Prudential Securities. Mr. Grossman currently serves on the board of directors of several privately owned companies.

Royce Yudkoff has served as a director since July 2004. Since 1989, Mr. Yudkoff has served as the president and managing partner of ABRY Partners, LLC. Prior to joining ABRY, Mr. Yudkoff was affiliated with Bain & Company, serving as a partner from 1985 to 1988. Mr. Yudkoff is presently a director (or the equivalent) of several companies, including Metrocall Wireless, Inc., Muzak Holdings LLC, Quorum Broadcast Holdings, LLC, Talent Partners and Nexstar Broadcasting Group Inc.

Brent Stone has served as a director since July 2004. Mr. Stone is an associate at ABRY Partners, LLC and has been associated with this firm since January 2002. Prior to joining ABRY, from July 2000 to January 2002, he was a member of the Investment Banking Department of Credit Suisse First Boston, formerly Donaldson, Lufkin and Jenrette. From June 1999 to July 2000, Mr. Stone was a member of the Syndicated Finance Group of Chase Securities.

Blaine F. Wesner has served as a general partner of Austin Ventures VI, L.P., Austin Ventures VII, L.P., and Austin Ventures VIII, L.P. since May 1998. Mr. Wesner joined Austin Ventures in 1990 and focuses on the firm’s communications investment area. Previously, Mr. Wesner was with Goldman Sachs & Co. in New York and was also the co-founder of Wesner Publications, a chain of suburban and community newspapers located throughout Oklahoma and Texas. Mr. Wesner has served as one of our directors since October 1994 and serves on the board of directors of several privately owned companies.

60

Executive Compensation

The following table contains summary information concerning the total compensation for the fiscal year ended June 30, 2003 paid to our chief executive officer and our four other most highly compensated executive officers serving in this capacity as of June 30, 2003, whose total salary and bonus exceeded $100,000 for that fiscal year. We refer to these persons as our “named executive officers.” None of our named executive officers received any stock option awards or restricted stock grants during the fiscal year ended June 30, 2003.

Summary Compensation Table

		Annual Compensation(1)		All Other Compensation
Name and Principal Position	Year	Salary	Bonus($)
James R. Hull President and Chief Executive Officer	2003	371,204.62	25,000.00	54,040.00	(2)
Michael R. Meyers Vice President and Chief Financial Officer	2003	224,848.81	15,000.00	1,697.57	(3)
Michael D. Gregory Vice President, Sales and Marketing	2003	137,513.68	15,000.00	948.53	(3)
Robert N. Sherman Vice President, Operations and Secretary	2003	125,531.51	20,000.00	930.33	(3)
Rick L. Hudson Vice President, Customer Services	2003	110,531.59	20,000.00	843.79	(3)

(1) Except as set forth above, the named executive officers did not receive any annual compensation not properly characterized as salary or bonus, except for certain perquisites or other benefits the aggregate incremental cost of which did not exceed the lesser of $50,000 or 10% of the total annual salary and bonus reported for each such officer. We have a medical and health benefits plan and we provide term life insurance for our employees, however, such plans do not discriminate in scope, terms or operation in favor of executive officers or directors and are generally available to all salaried employees, except for the term life insurance premium paid for James R. Hull as noted in footnote (2) below. We have a 401(k) plan, but we do not have any pension plan.

(2) Represents $2,940 in payments we made for the premium for James R. Hull’s $750,000 term life insurance policy, $2,000 in matching contributions to Mr. Hull’s 401(k) plan and $49,100 in payments for professional fees related to the preparation of Mr. Hull’s personal tax return.

(3) Represents matching contributions to the named executive officer’s 401(k) plan.

Employment Agreements

James R. Hull has an employment agreement with us that automatically renews on November 1 of each year for successive one-year periods unless prior written notice of nonrenewal is given by us. The agreement provides that we may terminate the agreement for cause and no further payments will be due to Mr. Hull. However, if termination is for “nonperformance” by Mr. Hull, which is defined as a material adverse deviation between our actual results of operations or financial condition as compared to our business plan or future plans approved by our board of directors, we are required to pay Mr. Hull an amount equal to the greater of six months’ base salary or his base salary for the unexpired portion of the current term of the agreement. If we terminate Mr. Hull without cause, we are required to pay him his base salary for 24 months. The agreement also provides for a two year non-competition covenant following termination, except in the case of termination without cause.

In addition, we have entered into an agreement with Mr. Hull pursuant to which we paid Mr. Hull a $2,000,000 transaction fee in cash at the closing of the Refinancing Transactions. Up to 60% of the transaction fee paid to Mr. Hull at the closing of the Refinancing Transactions must be repaid by Mr. Hull if he leaves the company voluntarily or is terminated for cause during the 18-month period following the date of the payment

61

of the transaction fee. The amount of the refund is dependent on the number of days of Mr. Hull’s employment during the 18-month period and will be equal to approximately $2,185 for each day remaining in the 18-month period following his termination of employment. Pursuant to the agreement, on November 7, 2003 we purchased 400,000 shares of Class A common stock owned by Mr. Hull’s family partnership at a purchase price of $1,000,000 in cash. The agreement also provides Mr. Hull with the right to sell up to $500,000 in value of his Class A common stock to us in each of the next five fiscal years at purchase prices per share based on a multiple of our cash flow. To the extent Mr. Hull does not sell $500,000 in value of his Class A common stock to us in any given fiscal year, he can sell the difference between $500,000 and the amount he sold to us in future fiscal years through fiscal year 2008. The agreement also provides that if we establish any stock option plans for our directors or executive officers while Mr. Hull is our chief executive officer, we must award Mr. Hull options to purchase at least 10% of the shares of our capital stock available for issuance under any such plans.

Michael R. Meyers has an employment agreement with us which terminates on August 31, 2006 and is automatically renewable on September 1, 2006 and on September 1 of each year thereafter for successive one-year periods unless written notice of nonrenewal is given by us. The agreement may be terminated by us for cause and in that event no further amounts will be due to Mr. Meyers. However, if termination is for nonperformance by Mr. Meyers, we are required to pay an amount equal to the greater of six months’ base salary or the base salary for the unexpired portion of the current term of the agreement. If the termination is without cause, we are required to pay an amount equal to the greater of nine months’ base salary or the base salary for the unexpired portion of the current term of the agreement. The agreement also provides for a two year non-competition covenant following termination, except in the case of termination without cause.

Robert N. Sherman also has an employment agreement with us which automatically renews on November 1 of each year for successive one-year periods unless written notice of nonrenewal is given by us. Mr. Sherman’s employment agreement provides that we may terminate the agreement for cause and no further payments will be due to Mr. Sherman. However, if termination is for nonperformance by Mr. Sherman or without cause, we are required to pay an amount equal to the greater of six months’ base salary or the base salary for the unexpired portion of the current term of the agreement. The agreement also provides for a two year non-competition covenant following termination, except in the case of termination without cause.

Michael D. Gregory also has an employment agreement with us which automatically renews on February 1 of each year for successive one-year periods unless written notice of nonrenewal is given by us. The agreement may be terminated by us for cause and in that event no further amounts will be due to Mr. Gregory. If the agreement is terminated for nonperformance by Mr. Gregory, he is entitled to his base salary for three months and if it is terminated without cause, he is entitled to the greater of his base salary for six months or the base salary for the unexpired portion of the current term of the agreement. The agreement also provides for a two year non-competition covenant following termination, except in the case of termination without cause.

Stock Option Plan

Our 1999 and 2001 stock option plans provide for grants of nonqualified stock options to our directors, executive officers, employees and consultants to promote our long-term financial success and, specifically, to retain and motivate our key personnel and consultants to make contributions to our success. Both plans are administered by our board of directors. Currently, neither plan has a pre-set formula or criteria for determining the number of options that may be granted to a director, executive officer, employee or consultant. The exercise price for an option granted under either plan may not be less than 100% of the fair market value of our Class A common stock on the date of grant. Our board of directors reviews and evaluates the overall compensation package of our executive officers and employees and determines the awards based on our overall performance and the individual performance of our executive officers and employees. The total number of shares of our Class A common stock that may be subject to options under the 1999 plan is 150,000 and under the 2001 plan is

62

250,000. As of March 31, 2004, options to purchase 92,000 shares of our Class A common stock are outstanding under the 1999 plan. As of March 31, 2004, no options had been granted under the 2001 plan.

Indemnification Agreements

Each member of our board of directors and each executive officer has entered into an indemnification agreement with us pursuant to which we have agreed to indemnify the director or executive officer to the fullest extent permitted by the Texas Business Corporation Act against expenses, judgments, penalties, fines and settlements incurred by or on behalf of the director in connection with any proceeding arising out of their services as a director or executive officer or their service in a representative capacity at our request.

Director Compensation

We do not provide compensation to any of our directors for their services as directors. Our directors are entitled to reimbursement of their reasonable out-of-pocket expenses incurred in connection with their travel to and attendance at meetings of the board of directors or committees thereof.

63

SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT

The following table sets forth certain information with respect to the beneficial ownership of our Class A common stock and Series A preferred stock on July 14, 2004 by:

• each shareholder owning more than five percent of any class of our capital stock;

• each of our directors;

• each of our named executive officers; and

• all directors and executive officers as a group.

	Number of Shares		Percent of Class				Voting Power
Name and Address of Beneficial Owner	Class A Common	Series A Preferred	Class A Common		Series A Preferred
Five Percent Holders
Austin Ventures III-A, L.P(1).	—	3,353,621	—		40.9	%	8.8	%
Austin Ventures III-B, L.P(1) 300 West 6th Street, Suite 2300 Austin, Texas 78701	—	2,832,733	—		34.6	%	7.4	%
Austin Ventures V, L.P(2).	—	1,905,449	—		23.3	%	5.0	%
Austin Ventures V Affiliates Fund, L.P.(2) 300 West 6th Street, Suite 2300 Austin, Texas 78701	—	95,272	—		1.2	%	*
ABRY Partners IV, L.P.(3)	17,121,419	—	57.2	%	—		44.9	%
ABRY Investment Partnership, L.P.(3) 111 Huntington Avenue Boston, Massachusetts 02199	10,570	—	*		—		*
Capital Resource Lenders II, L.P.(4) 85 Merrimac Street, Suite 200 Boston, Massachusetts 02114	2,964,585	—	9.9	%	—		7.8	%
New York Life Capital Partners II, L.P.(5) 51 Madison Avenue, Suite 3009 New York, New York 10010	5,000,000	—	16.7	%	—		13.1	%
PPM America Private Equity Fund LP(6) 225 W. Wacker Drive, Suite 1200 Chicago, Illinois 60606	3,333,333	—	11.1	%	—		8.7	%
Executive Officers and Directors
James R. Hull(7) 12801 Stemmons Freeway, Suite 821 Dallas, Texas 75234	536,218	—	1.8	%	—		1.4	%
Blaine F. Wesner(8) 300 West 6th Street, Suite 2300 Austin, Texas 78701	—	—	—		—		—
Jay M. Grossman(9) 111 Huntington Avenue Boston, Massachusetts 02199	—	—	—		—		—
Erik Brooks(9) 111 Huntington Avenue Boston, Massachusetts 02199	—	—	—		—		—

64

	Number of Shares		Percent of Class			Voting Power
Name and Address of Beneficial Owner	Class A Common	Series A Preferred	Class A Common		Series A Preferred
Royce Yudkoff(9) 111 Huntington Avenue Boston, Massachusetts 02199	—	—	—		—	—
Brent Stone(9) 111 Huntington Avenue Boston, Massachusetts 02199	—	—	—		—	—
Robert N. Sherman 12801 Stemmons Freeway, Suite 821 Dallas, Texas 75234	287,081	—	1.0	%	—	*
Michael R. Meyers 12801 Stemmons Freeway, Suite 821 Dallas, Texas 75234	125,784	—	*		—	*
Michael D. Gregory 12801 Stemmons Freeway, Suite 821 Dallas, Texas 75234	71,933	—	*		—	*
Rick L. Hudson 12801 Stemmons Freeway, Suite 821 Dallas, Texas 75234	52,274	—	*		—	*
All directors and executive officers as a group(12 persons)	1,152,022	—	3.8	%	—	3.0	%

* Less than one percent.

(1) AV Partners III, L.P. is the general partner of Austin Ventures III-A, L.P. (“AV III-A”) and Austin Ventures III-B, L.P. (“AV III-B”), and has sole voting and investment power over shares held by such entities. Kenneth P. DeAngelis, Joseph C. Aragona and Jeffrey C. Garvey, as general partners of AV Partners III, L.P., and Blaine F. Wesner as an assignee of AV Partners III, L.P., may be deemed to have shared voting and investment power over such shares. Each of Messrs. DeAngelis, Aragona, Garvey and Wesner disclaims beneficial ownership of the shares held by funds affiliated with Austin Ventures, except to the extent of his pecuniary interest therein.

(2) AV Partners V, L.P. is the general partner of Austin Ventures V, L.P. (“AV-V”) and Austin Ventures V Affiliates Fund, L.P. (“AV Affiliates”) and has sole voting and investment power over shares held by such entities. Messrs. DeAngelis, Aragon, Garvey, Wesner and John D. Thornton, as general partners of AV Partners V, L.P., may be deemed to have shared voting and investment power over such shares. Each of Messrs. DeAngelis, Aragona, Garvey, Wesner and Thornton disclaims beneficial ownership of the shares held by funds affiliated with Austin Ventures, except to the extent of his pecuniary interest therein.

(3) Royce Yudkoff has sole voting and investment power over the shares held by ABRY Partners IV, L.P. (“ABRY IV”) as the sole member of ABRY Capital Partners, LLC, which is the sole general partner of ABRY Capital Partners, L.P., which is the sole general partner of ABRY IV. Mr. Yudkoff also has sole voting and investment power over the shares held by ABRY Investment Partnership, L.P. (“ABRY Investment”) as the sole member of ABRY Investment GP, LLC, which is the sole member of ABRY Investment.

(4) Robert C. Ammerman has sole voting and investment power over the shares held by Capital Resource Lenders II, L.P. (“Capital Resource”) as the sole general partner of Capital Resource Partners II, L.P., which is the general partner of Capital Resource.

(5) No individual at New York Life Capital Partners II, L.P. has voting or investment power over the shares.

(6) PPM America Capital Partners, LLC is the general partner of PPM America Private Equity Fund, LP and has sole voting and investment power over shares held by PPM America Private Equity Fund, LP. No individual at PPM America Capital Partners, LLC has voting or investment power over the shares owned by PPM America Private Equity Fund, LP.

65

(7) Hull Family Limited Partnership owns 536,218 shares of Class A common stock. James Hull Management Trust is the general partner of Hull Family Limited Partnership. James R. Hull is the sole trustee of James Hull Management Trust and, therefore, has sole voting and investment power over and is deemed to also beneficially own these shares.

(8) Does not include 3,353,621 shares of Series A preferred stock beneficially owned by AV III-A, 2,832,733 shares of Series A preferred stock beneficially owned by AV III-B, 1,905,449 shares of Series A preferred stock beneficially owned by AV-V and 95,272 shares of Series A preferred stock beneficially owned by AV Affiliates. Mr. Wesner disclaims beneficial ownership of such shares except to the extent of his pecuniary interest.

(9) Does not include 17,121,449 shares of Class A common stock beneficially owned by ABRY IV and 10,570 shares of Class A common stock beneficially owned by ABRY Investment. Each of Messrs. Grossman, Brooks, Yudkoff and Stone disclaims beneficial ownership of such shares.

66

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

On January 18, 2002, we borrowed an aggregate of $40 million from The Northwestern Mutual Life Insurance Company (“Northwestern Mutual”) pursuant to a subordinated note and warrant purchase agreement. The subordinated notes initially accrued interest at 13.5% per annum, of which 12.0% per annum was payable in cash and 1.5% per annum was added to the outstanding principal amount, and were due and payable on January 18, 2009. We also issued warrants currently exercisable for 1,133,328 shares of Class A common stock at an exercise price of $0.01 per share in connection with the subordinated notes. A portion of the proceeds of the August 2003 refinancing was used to repay $20.5 million principal amount of the subordinated notes outstanding at a repurchase price of $23.2 million. The terms of the remaining $20.5 million principal amount of subordinated notes were amended to extend the maturity to March 1, 2010 and to provide that the 1.5% per annum interest to be added to the outstanding principal amount be increased to 2.5% per annum on December 15, 2003 with the increased rate to be applied retroactively to August 25, 2003. In connection with the repurchase and amendment of the subordinated notes, Northwestern Mutual received a fee of approximately $205,000.

On July 14, 2004, certain of our shareholders entered into a recapitalization agreement with us in which our existing preferred shareholders elected to exchange all of their shares of preferred stock, Class A common stock and warrants to purchase Class A common stock for shares of a newly created Series A preferred stock or Class A common stock based on the exchange terms negotiated amongst such shareholders. We also redeemed approximately $5.6 million of the Series C and Series C-1 preferred stock held by Windward Capital Partners II, L.P. and Windward Capital LP II, LLC, who then sold the Class A common stock they received in exchange for their remaining Series C and Series C-1 preferred stock to New York Life Capital Partners II, L.P. (“New York Life”) and PPM America Private Equity Fund LP (“PPM”).

In connection with the recapitalization we entered into a Fifth Amended and Restated Shareholders Agreement (the “Shareholders Agreement”) with each of AV III-A, AV III-B, AV-V, AV Affiliates (collectively, “Austin Ventures”), ABRY IV, ABRY Investment (collectively, “ABRY”), Capital Resource, New York Life, PPM, The Northwestern Mutual Life Insurance Company (“Northwestern Mutual”), the Hull Family Limited Partnership, Michael R. Meyers, Stephen M. Hedrick, Robert N. Sherman and Michael D. Gregory which provides that our board of directors will consist of up to seven members. Upon consummation of the recapitalization and as required by the Shareholders Agreement, our board was reconstituted to consist of four directors designated by ABRY, one director designated by Austin Ventures and James R. Hull for so long as he is employed by us. In addition the Shareholders Agreement provides that the individual serving as our chief executive officer will be designated as a director. This director position is currently filled by Mr. Hull such that our current board of directors consists of six individuals.

The Shareholders Agreement provides that if any party desires to transfer shares of our capital stock, that party must, subject to certain restrictions, first offer the other parties to the agreement the opportunity to purchase such shares. This right of first refusal does not apply to sales by Austin Ventures of its shares of our Series A preferred stock received in the recapitalization or sales by Northwestern Mutual of shares of our Class A common stock if such shares are sold to a purchaser of the senior subordinated notes held by Northwestern Mutual. The right of first refusal also does not apply to sales of shares by ABRY during any period in which ABRY and its affiliates hold at least 75% of the shares of Class A common stock held by them immediately after the recapitalization or 32.4% of our fully-diluted common stock. If the other parties choose not to purchase a selling shareholder’s shares, the selling shareholder must offer them the opportunity to include in the proposed sale their proportionate share of Class A common stock or Series A preferred stock based on their fully-diluted share ownership. This co-sale right will not apply to shares of Series A preferred stock after the date on which the holders thereof elect for such shares to begin accruing dividends. Furthermore, no shares of Series A preferred stock may be transferred without the consent of the holders of a majority of the shares held by ABRY, unless such shares are transferred in compliance with the co-sale rights applicable to the Series A preferred stock or other limited exceptions. In addition, AV III-A, AV III-B, AV-V, AV Affiliates, ABRY IV, ABRY Investment, Capital Resource, New York Life, PPM, Northwestern Mutual and the Hull Family Limited Partnership have the contractual preemptive right

67

to purchase a pro rata share based on the number of shares of our common stock (assuming conversion, exercise or exchange of all outstanding equity securities of the company) of any equity securities we propose to issue, with certain exceptions.

The Shareholders Agreement permits ABRY to initiate the sale or liquidation of the company at any time provided that ABRY or its affiliates own at least 75% of the shares of Class A common stock held by them immediately after the recapitalization or 32.4% of our fully-diluted common stock. If the holders of the Series A preferred stock have elected for the shares to begin accruing dividends and we have not redeemed the Series A preferred stock on or prior to June 30, 2009, the holders of the Series A preferred stock may also initiate the sale or liquidation of the company.

We also entered into a Registration Agreement in connection with the recapitalization with each of AV III-A, AV III-B, AV-V, AV Affiliates, ABRY IV, ABRY Investment, Capital Resource, New York Life, PPM and Northwestern Mutual pursuant to which they may, subject to certain restrictions, require us to register under the Securities Act of 1933 the shares of Class A common stock owned by them. In addition, if we propose to register any of our securities under the Securities Act of 1933 these shareholders will have the right to include in such registration their shares of Class A common stock. James R. Hull also has the right to include the shares of Class A common stock held by the Hull Family Limited Partnership in any registration of company securities that we effect pursuant to the terms of the Amended and Restated Affiliate Registration Agreement, dated May 10, 1996, as amended.

Northwestern Mutual has the contractual preemptive right to purchase its pro rata share, based on the number of warrants or warrant shares owned by it in relation to the fully diluted outstanding shares of our Class A common stock, of any subordinated debt, with certain exceptions, proposed to be issued by us at any time prior to the closing of a firm commitment underwritten public offering of shares of our Class A common stock meeting certain criteria, which we refer to in this prospectus as a “qualified public offering.”

We have entered into an agreement with James R. Hull, our president, chief executive officer and founder, pursuant to which we paid Mr. Hull a $2 million transaction fee in cash at the closing of the Refinancing Transactions for his significant involvement in structuring the August 2003 refinancing and negotiating with our shareholders, noteholders and bank syndicate members. Pursuant to the agreement, on November 7, 2003, we purchased 400,000 shares of Class A common stock owned by Mr. Hull’s family partnership at a purchase price of $1,000,000 in cash. The agreement also gives Mr. Hull the right to sell up to $500,000 in value of his Class A common stock to us in each of the next five fiscal years at purchase prices per share based on a multiple of our cash flow. See “Management—Employment Agreements” for a more complete discussion of the terms of Mr. Hull’s agreement.

We paid an advisory fee of $2.7 million to ABRY Partners LLC, an affiliate of ABRY Capital Partners, L.P., in connection with their services in advising on the terms and the structure of the August 2003 refinancing. An affiliate of ABRY Capital Partners, L.P. purchased old notes in the offering related to the August 2003 refinancing.

68

DESCRIPTION OF INDEBTEDNESS

Credit Facility

General

We have entered into a senior secured credit facility with Fleet National Bank (“Fleet”), as administrative agent, Bank of America, N.A., as syndication agent and a syndicate of lenders, including Fleet and Bank of America, N.A. The following summary is not complete and is subject to, and qualified in its entirety by reference to, the Credit Agreement, which is an exhibit to the prospectus.

The senior secured credit facility provides for an aggregate principal amount of $320 million, consisting of a $145 million revolving credit facility and a $175 million term loan facility. The facility also provides for the possibility, subject to the satisfaction of various conditions, that it may be increased in an additional amount of up to $150 million. Our ability to increase our credit facility will be subject to our compliance with the financial covenants under the indenture governing the notes. The revolving credit facility matures on August 25, 2008, and the term loan facility matures on August 26, 2009.

Security

Indebtedness under our senior secured credit facility is secured by all of our assets, including alarm monitoring contracts, service agreements, non-compete agreements and alarm purchase agreements.

Interest

Indebtedness under our credit facility bears interest at a floating rate based, at our option, upon (a) Fleet’s base rate, or (b) the London Interbank Offered Rate, which we refer to herein as “LIBOR,” plus the applicable LIBOR or base rate margin. Fleet’s base rate is the annual rate of interest announced from time to time by Fleet as its base rate. The base rate margin applicable to the revolving credit facility will vary from 2.25% to 3.00% and the LIBOR margin applicable to the revolving credit facility will vary from 3.25% to 4.00%, in each case, depending on the ratio of our total debt to our annualized quarterly net operating income, as defined in the documentation applicable to the credit facility. The term loan will bear interest at LIBOR plus 4.50%. Interest periods for LIBOR based loans shall be, at our option, one, two, three and six months. Interest on base rate loans is payable quarterly in arrears and interest on LIBOR loans is payable on the last day of the interest period therefor and, if longer than three months, at three month intervals. At any time when we are in default under our credit facility, indebtedness under the credit facility shall bear interest at 2.00% above the rate that would otherwise be applicable.

Commitment Fee

We will be required to pay a commitment fee, payable quarterly in arrears, on the unused portion of our new revolving credit facility based upon the sum of the average unused portion of the revolving credit facility during the quarter, equal to either .75% if we borrow less than 50% of the total amount available to us under such credit facility or .5% if we borrow more than 50% of the total amount available to us under such credit facility.

Repayment

The revolving credit facility provides for commitment reductions of 5% per quarter beginning on December 31, 2006. The term loan facility provides for scheduled amortization of 1% per year during years one through three of the term loan facility, 5% per year in year four of the term loan facility, and 12% per year in year five of the term loan facility, in each case, payable quarterly.

69

The credit facility provides for mandatory prepayments:

• upon certain asset dispositions by us or certain casualty events affecting our properties;

• upon certain issuances of our capital securities; and

• with proceeds of certain issuances of debt securities other than the issuance of the new notes in the exchange offer.

Amounts under our credit facility may be voluntarily prepaid without premium or penalty subject to three business days written notice. All costs associated with early termination of LIBOR loans will be borne by us.

Covenants

The credit facility requires us to meet certain financial tests, including:

• an interest coverage ratio, defined as net operating income for the trailing three month period ending on the calculation date, to interest expense for such trailing three month period, of at least 2.75 to 1.0;

• a senior leverage ratio, defined as total senior debt as of the last day of the immediately preceding month to the product of four times the net operating income for the trailing three month period ending on the calculation date, not to exceed 2.15 to 1.0;

• a total leverage ratio, defined as total debt as of the last day of the immediately preceding period to the product of four times the net operating income for the trailing three month period ending on the calculation date, of at least:

• 4.0 to 1.0 through June 29, 2005;

• 3.75 to 1.0 from June 30, 2005 through June 29, 2006;

• 3.50 to 1.0 from June 30, 2006 through June 29, 2007; and

• 3.25 to 1.0 for periods thereafter;

• a fixed charge coverage ratio, defined as net operating income to fixed charges, in each case for the trailing twelve month period ending on the calculation date, of at least 1.75 to 1.0; and

• an annual limit on our capital expenditures of $4.5 million per fiscal year, but we may carry forward up to $400,000 of permitted but unused capital expenditures from the immediately preceding year.

Our failure to comply with any of the foregoing financial tests will result in an event of default under the credit facility, and our lenders may terminate all of our commitments under the credit facility and declare all amounts owing under the credit facility to become immediately due and payable. At March 31, 2004 we were, and currently we are, in compliance with all such tests.

Our credit facility also contains customary negative covenants that, among other things, limit:

• the incurrence of additional indebtedness except the credit facility, permitted debt, certain purchase money obligations, capital leases, trade obligations in the ordinary course of business and certain other debt;

• the creation of additional liens on our assets;

• mergers, business combinations, acquisitions and investments;

• dividends or other restricted payments in respect of our capital stock;

• transactions with affiliates;

• sales of assets other than assets sold or disposed of in the ordinary course of business other than permitted dispositions in a maximum amount per year; and

• changes in our lines of business.

70

Events of Default

Our credit facility contains customary events of default, including:

• payment defaults;

• breach of representations or warranties and non-performance of covenants and obligations, subject to certain cure periods;

• defaults on other indebtedness;

• bankruptcy and insolvency;

• impairment of security;

• unsatisfied judgments;

• certain change of control events;

• failure to obtain or cessation of material authorizations or licenses; and

• actual or asserted invalidity of loan documentation.

Subordinated Notes

We have $20.7 million principal amount of 14.5% subordinated notes due March 1, 2010 outstanding and held by The Northwestern Mutual life Insurance Company. We originally issued $40 million of these subordinated notes to The Northwestern Mutual Life Insurance Company on January 18, 2002 in a transaction exempt from the registration requirements of the Securities Act in reliance on Rule 4(2) promulgated thereunder. These notes are unsecured and will be subordinated in right of payment to our new senior secured credit facility and the new notes. Interest on the subordinated notes is payable semiannually in arrears on June 30 and December 31. The subordinated notes originally matured on January 18, 2009 and accrued interest at a rate of 13.5% per annum, of which 12.0% per annum was payable in cash and the remaining 1.5% per annum added to the outstanding principal amount. In connection with our refinancing on August 25, 2003, we amended the terms of the subordinated notes to extend the maturity to March 1, 2010. In addition, the 1.5% per annum interest added to the outstanding principal amount of the subordinated notes increased to 2.5% per annum on December 15, 2003, and the increased interest rate applies retroactively to August 25, 2003. The subordinated notes are redeemable at our option, in whole or in part, at a redemption price of 105% of their principal amount (declining annually each January 19 by 1% to 100% on January 19, 2008) plus accrued and unpaid interest. A change of control would require us to offer to prepay the subordinated notes at such redemption prices.

The agreement governing the subordinated notes requires us to meet certain financial tests, including:

• an interest coverage ratio, defined as net operating income for the trailing three month period ending on the calculation date to interest expense for such trailing three month period, of at least 2.47 to 1.0;

• a senior leverage ratio defined as total senior debt as of the last day of the immediately preceding month to the product of four times the net operating income for the trailing three month period ending on the calculation date, not to exceed 2.37 to 1.0;

• a total leverage ratio, defined as total debt as of the last day of the immediately preceding period to the product of four times the net operating income for the trailing three month period ending on the calculation date, of at least:

• 4.40 to 1.0 through June 29, 2005;

• 4.13 to 1.0 from June 30, 2005 through June 29, 2006;

• 3.85 to 1.0 from June 30, 2006 through June 29, 2007; and

• 3.58 to 1.0 for periods thereafter;

71

• a fixed charge coverage ratio, defined as net operating income to fixed charges, in each case for the trailing twelve month period ending on the calculation date, of at least 1.57 to 1.0; and

• an annual limit on our capital expenditures of $4.95 million per fiscal year, but we may carry forward up to $440,000 of permitted but unused capital expenditures for the immediately preceding year.

Our failure to comply with any of the foregoing financial tests will result in an event of default under the subordinated note agreement and the noteholders may declare all amounts owing under the subordinated note agreement to become immediately due and payable. At March 31, 2004 we were, and currently we are, in compliance with all of the financial ratios in the subordinated note agreement.

The subordinated note agreement also contains customary negative covenants that, among other things, limit:

• the incurrence of additional indebtedness except senior debt (including the credit facility and the 11¾% senior subordinated notes due 2010), the subordinated notes, permitted debt, certain purchase money obligations, capital leases, trade obligations in the ordinary course of business and certain other debt;

• the creation of additional liens on our assets;

• mergers, business combinations, acquisitions and investments;

• dividends or other restricted payments in respect of our capital stock;

• transactions with affiliates;

• sales of assets other than assets sold or disposed of in the ordinary course of business other than permitted dispositions in a maximum amount per year; and

• changes in our lines of business.

Our failure to comply with any of the foregoing covenants constitutes an event of default.

The agreement governing the subordinated notes contains other events of default, some of which could occur without an event of default occurring under the indenture governing the notes to be issued in connection with this offering. If an event of default occurs and is continuing, holders of 66 ²/3% of the outstanding principal amount of subordinated notes may declare the subordinated notes payable at the redemption prices discussed above, together with all accrued and unpaid interest.

DESCRIPTION OF NEW NOTES

The form and terms of the new notes are the same as the form and terms of the old notes, except that the new notes have been registered under the Securities Act, will not bear legends restricting the transfer thereof, will not be entitled to registration rights under the registration rights agreement, and will not contain provisions relating to additional interest. The terms of the new notes include those stated in the indenture and those made part of the indenture by reference to the Trust Indenture Act of 1939.

You can find the definitions of terms used in this description under the subheading “Definitions.” In this description, the word “notes” refers to the new notes and the old notes.

We will issue the notes under the same indenture as the old notes, which is dated as of August 25, 2003 and is between us and The Bank of New York Trust Company, N.A. (formerly known as The Bank of New York Trust Company of Florida, N.A.), as trustee.

Subject to the covenant described below under “Covenants—Limitation on Incurrence of Additional Debt and Issuance of Capital Stock” and other applicable laws, we may issue additional notes under the indenture. The

72

old notes, the new notes and any additional notes issued from time to time in accordance with the terms of the indenture will constitute a single class of debt securities under the indenture. If the exchange offer is consummated, holders of old notes who do not exchange new notes for their old notes will vote together with holders of the new notes and, if applicable, any holders of additional notes for all relevant purposes under the indenture. Accordingly, in determining whether the required holders have given any notice, consent or waiver or taken any other action permitted under the indenture, any old notes that remain outstanding after the exchange offer will be aggregated with the new notes and, if applicable, any additional notes, and the holders of the old notes, the new notes and the additional notes will vote together as a single class. All references in this prospectus to specified percentages in aggregate principal amount of the notes that are outstanding means, at any time after the exchange offer is consummated, the percentage in aggregate principal amount of the old notes, the new notes and the additional notes then outstanding.

The following description is a summary of the provisions of the indenture that we believe to be material and of interest to you and does not restate that agreement in its entirety. We encourage you to read the indenture because that agreement, and not this description, will define your rights as a holder of the notes. Any references in this summary to dollar amounts are to U.S. dollars and include the foreign currency equivalent of that amount determined at the relevant time to the extent proceeds, transactions or other amounts are denominated, in whole or in part, in a currency other than U.S. dollars.

Principal, Maturity and Interest

The notes will be our senior subordinated unsecured obligations. We will initially issue approximately $160.0 million aggregate principal amount of new notes in this offering in exchange for the old notes.

The notes will mature on September 1, 2010. Interest on the notes will accrue at a rate of 11 ³/4% per annum and will be payable semi-annually in arrears on March 1 and September 1, commencing on March 1, 2004. We will pay interest to those persons or entities who were holders of record on the February 15 or August 15 immediately preceding each interest payment date.

Interest on the notes will accrue from the date of original issuance of the old notes or, if interest has already been paid, from the date it was most recently paid. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months.

We will make all payments on the notes at the office or agency of the paying agent and registrar within the City and State of New York. The trustee will initially act as paying agent and as registrar for the notes. We may change the paying agent or registrar without prior notice to the trustee or noteholders. Subject to compliance with any applicable laws or regulations, we or any of our subsidiaries may act as paying agent or registrar.

We currently have no subsidiaries. It is expected that any subsidiaries we create in the future will be “Restricted Subsidiaries.” The notes will be fully and unconditionally guaranteed by each of our future domestic restricted subsidiaries. These subsidiary note guarantees will be joint and several obligations of the guarantors. Each note guarantee will be subordinated to the prior payment in full of all Senior Debt of that guarantor. We anticipate that the guarantors will also guarantee all obligations under the Credit Agreement, and each guarantor will grant a security interest in all or substantially all of its assets to secure the obligations under the Credit Agreement. The obligations of each guarantor under its note guarantee will be limited to prevent that note guarantee from constituting a fraudulent conveyance under applicable law.

Under the circumstances described below under the subheading “Restrictive Covenants—Limitation on Restricted Payments,” we will be permitted to designate certain of our subsidiaries as “Unrestricted Subsidiaries.” Unrestricted Subsidiaries will not be subject to many of the restrictive covenants in the indenture. Unrestricted Subsidiaries will not guarantee the notes.

73

Transfer and Exchange

A holder may transfer or exchange notes in accordance with the indenture and compliance with applicable securities laws. We, the registrar or the trustee may require a holder to, among other things, furnish appropriate endorsements and transfer documents in connection with a transfer or exchange of notes. We may require a holder to pay any transfer or other taxes and governmental or other fees payable in connection with a transfer or exchange of notes. We are not required to transfer or exchange any note for a period of 15 days before a selection of notes to be redeemed.

The registered holder of a note will be treated as owning the note for all purposes.

Subordination

The notes:

• will be our senior subordinated unsecured obligations and will rank equally with all of our senior subordinated Indebtedness;

• will be subordinated in right of payment to all of our existing and future Senior Debt; and

• will be senior in right of payment to all of our existing and any future subordinated Indebtedness.

The payment of principal, premium, interest and all other amounts payable with respect to the notes will be subordinated to the prior payment in full in cash of all of our Senior Debt as described below.

The holders of Senior Debt will be entitled to receive payment in full in cash of all obligations due in respect of Senior Debt before the holders of the notes will be entitled to receive any payment with respect to the notes (except that holders of notes may receive and retain Permitted Junior Securities and payment made from the trust described under the caption “Defeasance”), in the event of any payment or distribution to our creditors:

(1) in a liquidation, dissolution or winding up of us or any guarantor;

(2) in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to us, any guarantor or its property;

(3) in an assignment for the benefit of creditors; or

(4) in any marshalling of the assets and liabilities of ours or any guarantor.

We also may not make any payment in respect of the notes (except in Permitted Junior Securities or from the trust described under the caption “Defeasance”) if:

(1) a payment default on Designated Senior Debt occurs and is continuing; or

(2) any other default occurs and is continuing on Designated Senior Debt that permits holders of the Designated Senior Debt to accelerate its maturity and the trustee receives a notice of such default (a “Payment Blockage Notice”) from us or the holders or representatives of any Designated Senior Debt.

We are obligated to resume payments on the notes:

(1) in the case of a payment default, upon the date on which such default is cured or waived; and

(2) in case of a nonpayment default, the earlier of the date on which such nonpayment default is cured or waived or 179 days after the date on which the applicable Payment Blockage Notice is received, unless the maturity of any Designated Senior Debt has been accelerated.

No new Payment Blockage Notice may be delivered unless and until 360 days have elapsed since the delivery of the immediately prior Payment Blockage Notice and all scheduled payments on the notes have been paid in full in cash.

74

No nonpayment default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice unless such first nonpayment default shall have been cured or waived for a period of not less than 90 days.

We must promptly notify holders of Senior Debt if payment of the notes is accelerated because of an Event of Default.

As a result of the subordination provisions described above, in the event of our bankruptcy, liquidation or reorganization, holders of the notes may recover less ratably than other creditors of ours, including those who are holders of Senior Debt.

As of March 31, 2004, we had $381.2 million of Indebtedness outstanding, $201.4 million of which was Senior Debt and $20.7 million was subordinated to the notes.

Optional Redemption

We may choose to redeem the notes at any time. If we do so, we may redeem all or any portion of the notes, at once or over time, after giving the required notice under the indenture.

To redeem the notes prior to September 1, 2007, we must pay a redemption price equal to 100% of the principal amount of the notes to be redeemed plus the Applicable Premium as of, and accrued and unpaid interest, if any, to, the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date).

“Applicable Premium” means, with respect to any note on any redemption date, the greater of (1) 1.0% of the principal amount of such note and (2) the excess of (a) the present value at such redemption date of (i) the redemption price of such note at September 1, 2007 (such redemption price being set forth in the table below) plus (ii) all required interest payments due on such note through September 1, 2007 (exclusive of interest accrued but unpaid to the date of redemption), computed using a discount rate equal to the Treasury Rate on such redemption date, plus 50 basis points, over (b) the principal amount of such note.

“Treasury Rate” means, as of any redemption date, the yield to maturity as of such redemption date of United States Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15 (519) that has become publicly available at least two business days prior to the redemption date (or, if such statistical release is no longer published, any publicly available source of similar market data)) most nearly equal to the period from the redemption date to September 1, 2007; provided, however, that if the period from the redemption date to September 1, 2007 is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year shall be used.

Beginning on September 1, 2007, we may redeem the notes at the redemption prices set forth below, plus accrued and unpaid interest, if any, to the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date). The following prices are for notes redeemed during the 12-month period commencing on September 1 of the years set forth below, and are expressed as percentages of principal amount:

Year	Percentage
2007	108.000	%
2008	102.938	%
2009	100.000	%

In addition, on or prior to September 1, 2006, we may, at our option, redeem up to 25% of the aggregate principal amount of notes issued under the indenture (including additional notes, if any, issued subsequent to this

75

offering) at a redemption price equal to 111.750% of the principal amount thereof, plus accrued and unpaid interest, if any, thereon to the redemption date, with the net cash proceeds of one or more offerings of Capital Stock (other than Disqualified Stock) of us or of a Holding Company (to the extent, in the case of a Holding Company, that the net cash proceeds thereof are used to purchase Capital Stock (other than Disqualified Stock), or are contributed to the common equity capital, of our company); provided that (1) at least 75% of the original aggregate principal amount of notes (including additional notes, if any, issued subsequent to this offering) remain outstanding immediately after the occurrence of any such redemption (excluding notes held by us and our Subsidiaries) and (2) such redemption shall occur within 90 days of the date of the closing of such offering.

Sinking Fund

There will be no mandatory sinking fund payments for the notes.

Repurchase at the Option of Holders Upon a Change of Control

If a Change of Control occurs, each holder of notes will have the right to require us to repurchase all or any part (equal to $1,000 or an integral multiple of $1,000) of that holder’s notes pursuant to the offer described below (the “Change of Control Offer”) on the terms set forth in the indenture. In the Change of Control Offer, we will offer a payment (the “Change of Control Payment”) in cash equal to 101% of the aggregate principal amount of notes repurchased plus accrued and unpaid interest, if any, to the date of purchase. Within 30 days following any Change of Control, we will mail a notice to each holder describing the transaction or transactions that constitute the Change of Control and offering to repurchase notes on the Change of Control payment date specified in the notice, which date will be no earlier than 30 days and no later than 90 days from the date such notice is mailed, pursuant to the procedures required by the indenture and described in such notice. We will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent those laws and regulations are applicable in connection with the repurchase of the notes as a result of a Change of Control. To the extent that the provisions of any securities laws or regulations conflict with the Change of Control provisions of the indenture, we will comply with the applicable securities laws and regulations and will not be deemed to have breached our obligations under the Change of Control provisions of the indenture by virtue of such conflict.

On the Change of Control payment date, we will, to the extent lawful:

(1) accept for payment all notes or portions of notes properly tendered pursuant to the Change of Control Offer;

(2) deposit with the paying agent an amount equal to the Change of Control Payment in respect of all notes or portions of notes properly tendered; and

(3) deliver or cause to be delivered to the trustee the notes properly accepted together with an officers’ certificate stating the aggregate principal amount of notes or portions of notes we are purchasing.

The paying agent will promptly mail to each holder of notes properly tendered the Change of Control Payment for such notes, and the trustee will promptly authenticate and mail (or cause to be transferred by book entry) to each holder a new note equal in principal amount to any unpurchased portion of the notes surrendered, if any; provided that each new note will be in a principal amount of $1,000 or an integral multiple of $1,000. We will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control payment date.

“Change of Control” means the occurrence of any of the following events:

(1) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of ours and our Restricted Subsidiaries taken as a whole or the Holding Company and its Subsidiaries taken as a whole to any person or entity or group of related persons or entities for purposes of Section 13(d) of the Exchange Act (a “Group”), other than to the Permitted Holders;

76

(2) the acquisition by any person, entity or Group (other than the Permitted Holders or a Holding Company) of the power, directly or indirectly, to vote or direct the voting of securities having more than 50% of the ordinary voting power for the election of our directors or, if we are a Subsidiary of a Holding Company, such Holding Company;

(3) the first day on which a majority of the members of our board of directors or a Holding Company’s board of directors are not Continuing Directors; or

(4) a “change in control” event occurs under the terms of the 14.5% subordinated notes due March 1, 2010 while such notes are outstanding or a “change in control” or “change in management” event occurs under the terms of the Credit Agreement.

Solely for purposes of determining whether a Change of Control has occurred under clause (2) above, if we become a Subsidiary of a Holding Company and thereafter cease to be a wholly-owned Subsidiary of such Holding Company, then the acquisition or ownership by any person, entity or Group (other than the Permitted Holders or a subsequent Holding Company) of the power, directly or indirectly, to vote or direct the voting of securities having any percentage of the ordinary voting power for the election of directors of the former Holding Company (the “Holdings Percentage”) shall be deemed to be the acquisition or ownership of that percentage of the ordinary voting power for the election of our directors equal to the product of the Holdings Percentage multiplied by the percentage of the ordinary voting power for the election of our directors held by the former Holding Company.

The provisions described above that require us to make a Change of Control Offer following a Change of Control will be applicable whether or not any other provisions of the indenture are applicable. We will not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the indenture applicable to a Change of Control Offer made by us and purchases all notes properly tendered and not withdrawn under the Change of Control Offer.

The trustee may not waive the covenant to make a Change of Control Offer. Restrictions in the indenture on our and our Restricted Subsidiaries’ ability to incur additional indebtedness, to grant liens on property, to make Restricted Payments and to make Asset Sales may also make more difficult or discourage an acquisition of our company, whether favored or opposed by our management or board of directors. These restrictions and the restrictions on transactions with Affiliates may make more difficult or discourage any leveraged buyout of our company or any of our Subsidiaries by our management. Consummation of any such transaction may require a repurchase of the notes, and neither we nor the acquiring party may have sufficient financial resources to effect such repurchase. In addition, the terms of the Credit Agreement and the indenture may restrict our ability to obtain the financing necessary to fund a Change of Control Offer.

The occurrence of a Change of Control under the indenture will result in an event of default under the Credit Agreement and our lenders will have the right to require repayment of the borrowings thereunder in full. Our obligations under the Credit Agreement will represent obligations senior in right of payment to the notes. Consequently, the subordination provisions of the indenture will have the effect of precluding our purchase of the notes in the event of a Change of Control, absent consent of the lenders under the Credit Agreement or repayment of all amounts outstanding thereunder (although our failure to comply with our obligations in the event of a Change of Control will constitute a default under the notes). The indenture provides that prior to complying with any of the provisions of this “Change of Control” covenant, but in any event within 90 days following a Change of Control, we will either repay all outstanding Senior Debt or obtain the requisite consents, if any, under all agreements governing outstanding Senior Debt to permit the repurchase of notes required by this covenant. We cannot assure you that we will have adequate resources to repay or refinance all indebtedness owing under the Credit Agreement or to fund the purchase of any notes upon a Change of Control.

77

The definition of Change of Control includes a phrase relating to the direct or indirect sale, lease, transfer, conveyance or other disposition of “all or substantially all” of the properties or assets of our company and our Restricted Subsidiaries taken as a whole. Although there is a limited body of case law interpreting the phrase “substantially all,” there is no precise established definition of the phrase under applicable law. Accordingly, the ability of a holder of notes to require us to repurchase our notes as a result of a sale, lease, transfer, conveyance or other disposition of less than all of the assets of our company and our Restricted Subsidiaries taken as a whole to another person, entity or group may be uncertain.

We may in the future enter into transactions, including acquisitions, refinancings or other recapitalizations or highly leveraged transactions, that would not constitute a Change of Control that would require us to make a Change of Control Offer, but that could increase the amount of indebtedness outstanding at such time or otherwise affect our capital structure or credit ratings or adversely affect the holders of the notes. The indenture does not contain provisions that would permit the holders of the notes to require us to purchase or redeem the notes upon the occurence of these transactions.

Restrictive Covenants

Limitation on Debt and Issuance of Disqualified Stock. We will not, and will not permit any Restricted Subsidiary to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, “incur”) any Indebtedness (including Acquired Debt), and we will not, and will not permit any of our Restricted Subsidiaries to, issue any Disqualified Stock (other than to us or a Wholly Owned Restricted Subsidiary); provided, however, that we and any guarantor may incur Indebtedness (including Acquired Debt) and issue shares of Disqualified Stock if our Leverage Ratio at the time of the incurrence of such Indebtedness or issuance of such Disqualified Stock, after giving pro forma effect thereto (including a pro forma application of the use of proceeds therefrom), is less than 4.5 to 1.0.

The first paragraph of this covenant will not prohibit the incurrence of any of the following items of Indebtedness or issuance of Disqualified Stock (collectively, “Permitted Debt”):

(1) the incurrence by us and the guarantors of Indebtedness pursuant to the Credit Agreement (including letter of credit obligations) in an aggregate principal amount outstanding under this clause (1) at any one time not to exceed $320 million, less the aggregate amount of all Net Proceeds of Asset Sales applied by us or any Restricted Subsidiary to repay any Indebtedness under the Credit Agreement (and, in the case of any revolving credit Indebtedness under the Credit Agreement, to effect a corresponding commitment reduction thereunder) pursuant to the “Limitation on Asset Sales” covenant;

(2) our incurrence of Existing Indebtedness;

(3) our incurrence of Indebtedness represented by the notes issued on the date of the indenture and any guarantees of such notes by the guarantors;

(4) the incurrence by us or any of our Restricted Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to refund, refinance or replace Indebtedness (other than intercompany Indebtedness) that was permitted by the indenture to be incurred under the first paragraph of this covenant or clauses (2), (3), (4) and (8) of this paragraph, or the issuance by us or any of our Restricted Subsidiaries of Permitted Refinancing Disqualified Stock in exchange for, or the net proceeds of which are used to refund, refinance or replace Disqualified Stock (other than intercompany Disqualified Stock) that was permitted by the indenture to be issued;

(5) the incurrence by us or any of our Restricted Subsidiaries of intercompany Indebtedness between or among us and any of our Restricted Subsidiaries; provided, however, that (i) if we or any guarantor are the obligor, such Indebtedness must be unsecured, evidenced by a promissory note and expressly subordinated to the prior payment in full in cash of all obligations under the notes, and (ii) (a) any subsequent issuance or

78

transfer of Equity Interests that results in any such Indebtedness being held by a person or entity other than us or a Restricted Subsidiary of ours and (b) any sale or other transfer of any such Indebtedness to a person or entity that is not either us or a Restricted Subsidiary of ours shall be deemed, in each case, to constitute an incurrence of such Indebtedness by us or such Restricted Subsidiary, as the case may be, that was not permitted by this clause (5);

(6) the incurrence by us or any of our Restricted Subsidiaries of Hedging Obligations, provided that such obligations are entered into for bona fide hedging purposes and not for speculative purposes;

(7) the incurrence by us and our Restricted Subsidiaries of additional Indebtedness in an aggregate amount not to exceed $25.0 million at any one time outstanding (which amount may, but need not, be incurred under the Credit Agreement);

(8) the incurrence by us or our Restricted Subsidiaries of Indebtedness represented by Capital Lease Obligations, mortgage financings or purchase money obligations, in each case incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of property, plant or equipment used in the business of us or such Restricted Subsidiary at the time of such incurrence (whether through a direct purchase of assets or the Capital Stock of any person or entity owning solely those assets) in an aggregate principal amount not to exceed $10.0 million at any time outstanding; and

(9) the guarantee by us or any guarantor of Indebtedness of us or a Restricted Subsidiary of ours that was permitted to be incurred by another provision of this covenant.

For purposes of determining compliance with this covenant, in the event that an item of Indebtedness meets the criteria of more than one of the categories of Permitted Debt described in clauses (1) through (9) above or is entitled to be incurred pursuant to the first paragraph of this covenant, we may, in our sole discretion,

(i) at the time the proposed Indebtedness is incurred, classify all or a portion of that item of Indebtedness on the date of its incurrence under either the first paragraph of this covenant or under any category of Permitted Debt described in clauses (1) through (9) above; and

(ii) reclassify at any later date all or a portion of that or any other item of Indebtedness as being or having been incurred in any manner that complies with this covenant;

provided, that, in each case, Indebtedness under the Credit Agreement outstanding on the date the notes are first issued under the indenture is deemed to be incurred pursuant to clause (1) of the second paragraph of this covenant.

Accrual of interest, accretion or amortization of original issue discount and the payment of interest on any Indebtedness in the form of additional Indebtedness with the same terms will not be deemed to be an incurrence of Indebtedness for purposes of this covenant.

Limitation on Restricted Payments. We will not make, and will not permit any Restricted Subsidiary to make, directly or indirectly, any Restricted Payment unless at the time of, and after giving effect to, such proposed Restricted Payment:

(1) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence of the proposed Restricted Payment;

(2) we would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable latest full fiscal quarter, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the test set forth in the first paragraph of the covenant described under the caption “Limitation on Debt and Issuance of Disqualified Stock”; and

(3) such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by us and our Restricted Subsidiaries after the date on which the notes are originally issued under the

79

indenture (excluding Restricted Payments permitted by clauses (2), (3), (5), (7), (8) and (9) of the next succeeding paragraph), is less than the sum, without duplication, of

(a) 50% of our Consolidated Net Income for the period (taken as one accounting period) beginning October 1, 2003 to the end of our most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit), plus

(b) 100% of the aggregate net proceeds, including the fair market value of property other than cash as determined by our board of directors in good faith, received by us since the date on which the notes are originally issued under the indenture (i) from the issue or sale of Equity Interests (other than Disqualified Stock) (including, without limitation, in a merger, consolidation, acquisition of property or any other form of transaction involving the issue or sale of Capital Stock (other than Disqualified Stock)), (ii) from the issue or sale of our Disqualified Stock or debt securities that have been converted into such Equity Interests (other than Equity Interests (or Disqualified Stock or convertible debt securities) sold to a Restricted Subsidiary of ours), and (iii) from other capital contributions to us (including, without limitation, through the merger or consolidation of an entity with and into us not involving the issuance or delivery of securities or any other consideration by us or any Restricted Subsidiary), plus

(c) the amount equal to the net reduction in Investments (other than Permitted Investments) made by us or any of our Restricted Subsidiaries in any entity after the date on which the notes are originally issued under the indenture resulting from, and without duplication (i) repurchases or redemptions of such Investments by such entity, proceeds realized upon the sale of such Investment to an unaffiliated purchaser and repayments of loans or advances or other transfers of assets by such entity to us or any Restricted Subsidiary of ours or (ii) the redesignation of Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each case as provided in the definition of “Investment”), not to exceed the amount of Investments previously made by us or any of our Restricted Subsidiaries, which amount was included in the calculation of Restricted Payments; provided, however, that no amount shall be included under this clause (c) to the extent it is already included in Consolidated Net Income.

The preceding provisions will not prohibit:

(1) the payment of any dividend or the making of any distribution within 60 days after the date of declaration thereof, if at the date of declaration the payment or distribution complied with the provisions of the indenture;

(2) the redemption, repurchase, retirement, defeasance or other acquisition of any of our subordinated Indebtedness or Capital Stock or any warrants, options or other rights to acquire shares of any such Capital Stock either (a) solely in exchange for our Equity Interests other than Disqualified Stock, (b) through the application of the net proceeds of a substantially concurrent sale for cash (other than to a Restricted Subsidiary of ours) of our Equity Interests other than Disqualified Stock or (c) in the case of Disqualified Stock, solely in exchange for, or through the application of the net proceeds of a substantially concurrent sale for cash (other than to a Restricted Subsidiary of ours) of, Permitted Refinancing Disqualified Stock; provided, in each case, that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement, defeasance or other acquisition shall be excluded from clause (3)(b) of the preceding paragraph;

(3) the defeasance, redemption, repurchase or other acquisition of subordinated Indebtedness, in exchange for or with the net cash proceeds from, an incurrence of Permitted Refinancing Indebtedness;

(4) the repurchase, redemption or other acquisition or retirement for value of any of our or a Holding Company’s Equity Interests held by any member of our, the Holding Company’s, or any of our Subsidiaries’ management or board of directors or family partnerships, trusts or other entities or investment

80

vehicles created for the benefit of any of the foregoing; provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests shall not exceed $2.5 million in any twelve-month period;

(5) payments by us to fund the payment by a Holding Company of audit, accounting, legal or other similar expenses, to pay franchise or other similar taxes and to pay other corporate overhead expenses, including directors’ fees, indemnifications and similar arrangements, so long as such dividends are paid as and when needed by a Holding Company so long as the aggregate amount of payments pursuant to this clause (5) does not exceed $500,000 in any calendar year;

(6) payments to enable us or a Holding Company to make cash payments to holders of our or its Capital Stock in lieu of issuance of fractional shares of our or its Capital Stock so long as the aggregate amount of payments pursuant to this clause (6) does not exceed $100,000 in any calendar year;

(7) repurchases of Capital Stock deemed to occur upon the exercise of stock options or warrants if such Capital Stock represents all or a portion of the exercise price thereof;

(8) repayment of our subordinated Indebtedness (including any early redemption premium) on the date on which the notes were initially issued under the indenture;

(9) repurchase, redemption or other acquisition or retirement of preferred stock outstanding on the date of the indenture in an amount not to exceed $15.0 million; and

(10) Restricted Payments in the amount of $10.0 million,

provided, however, that in each case, no Event of Default shall have occurred or be continuing at the time of such payment or as a result thereof. In determining the aggregate amount of Restricted Payments made subsequent to the date on which the notes are initially issued under the indenture, amounts expended pursuant to clauses (1), (4), (6) and (10) shall be included in such calculations.

Notwithstanding anything to the contrary in this “Limitation on Restricted Payments” covenant, we will not effect any repurchase, redemption, defeasance, other acquisition or retirement of our 14.5% subordinated notes due March 1, 2010 outstanding on the date of the indenture other than in exchange for or with the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness.

The amount of all Restricted Payments (other than cash) will be the fair market value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by us or the Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair market value of any non-cash Restricted Payment will be determined in good faith by our board of directors whose resolution will be delivered to the trustee. Our board of directors’ determination must be based upon an opinion or appraisal issued by an accounting, appraisal or investment banking firm of national standing if the fair market value exceeds $7.5 million. Not later than the date of making any Restricted Payment, we will deliver to the trustee an officers’ certificate stating that the Restricted Payment is permitted and providing the basis upon which the calculations required by this “Limitation on Restricted Payments” covenant were computed, together with a copy of any fairness opinion or appraisal required by the indenture.

Our board of directors may designate any Restricted Subsidiary to be an Unrestricted Subsidiary in accordance with the terms of the indenture if such designation would not cause a Default. For purposes of making this determination, all outstanding Investments by us and our Restricted Subsidiaries (except to the extent repaid in cash) in the designated Subsidiary will be deemed to be Restricted Payments at the time of the designation and will reduce the amount available for Restricted Payments under the first paragraph of this covenant. All such outstanding Investments will be deemed to constitute Investments in an amount equal to the fair market value of such Investments at the time of the designation as determined in good faith by our board of directors. The designation will only be permitted if the Restricted Payment would be permitted at that time and if the Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary.

81

Any designation by our board of directors will be evidenced to the trustee by filing with the trustee a certified copy of the resolution of our board of directors giving effect to the designation and an officers’ certificate certifying that the designation complied with the foregoing conditions. If, at any time, any Unrestricted Subsidiary would fail to meet the definition of an Unrestricted Subsidiary, it will thereafter cease to be an Unrestricted Subsidiary for purposes of the indenture and any Indebtedness of that Subsidiary will be deemed to be incurred by a Restricted Subsidiary of ours as of that date (and, if the Indebtedness is not permitted to be incurred as of that date under the covenant described under the caption “Limitation on Debt and Issuance of Disqualified Stock,” we will be in default of that covenant). Our board of directors may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that (1) the designation will be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of ours of any outstanding Indebtedness of that Unrestricted Subsidiary and that designation will only be permitted if the Indebtedness is permitted under the covenant described under the caption “Limitation on Debt and Issuance of Disqualified Stock,” calculated on a pro forma basis as if that designation had occurred at the beginning of the relevant latest full fiscal quarter and, to the extent the Indebtedness is secured by a lien, that lien is permitted under the “Limitation on Liens” covenant, (2) all outstanding Investments owned by the Unrestricted Subsidiary will be deemed to be made as of the time of the designation and the designation will only be permitted if those Investments would be permitted under the “Limitation on Restricted Payments” covenant, and (3) no Default or Event of Default would be in existence immediately following the designation.

Limitation on Liens. We will not, and will not permit any Restricted Subsidiary to, directly or indirectly, create, incur, assume or suffer to exist any lien securing Indebtedness on any asset now owned or hereafter acquired, or any income or profits therefrom or assign or convey any right to receive income therefrom, except Permitted Liens, unless contemporaneously therewith we make effective provision to secure the notes and all other amounts due under the indenture, and in the case of a Restricted Subsidiary which is a guarantor, effective provision to secure such Restricted Subsidiary’s note guarantee and all other amounts due under the indenture, equally and ratably with such Indebtedness (or, in the event that such Indebtedness is subordinated in right of payment to the notes or such Restricted Subsidiary’s note guarantee, prior to such Indebtedness) with a lien on the same properties and assets securing such Indebtedness for so long as such Indebtedness is secured by such lien.

Limitation on Asset Sales. We will not, and will not permit any Restricted Subsidiary to, directly or indirectly, consummate any Asset Sale unless:

(1) we or such Restricted Subsidiary receive consideration at the time of the Asset Sale at least equal to the fair market value of the assets or Equity Interests issued or sold or otherwise disposed of;

(2) the fair market value is determined in good faith by our management or, if such Asset Sale involves consideration in excess of $5 million, by our board of directors as evidenced by a board resolution; and

(3) at least 75% of the consideration paid to us or such Restricted Subsidiary in connection with such Asset Sale is in the form of Qualified Consideration.

Within 365 days after the receipt of any Net Proceeds from an Asset Sale, we or such Restricted Subsidiary may apply such Net Proceeds, at our or its option:

(1) to repay Senior Debt of ours or any guarantor, or any Indebtedness of any Restricted Subsidiary that is not a guarantor (and, in the case of revolving credit Indebtedness, to reduce commitments with respect thereto); or

(2) to the acquisition of a majority of the assets of a Permitted Business, or a majority of the Voting Stock of an entity engaged in a Permitted Business (provided that such entity will become on the date of acquisition thereof a Restricted Subsidiary), the making of a capital expenditure or the acquisition of other long-term assets (including, without limitation, security monitoring accounts or agreements) that are used or useful in a Permitted Business.

82

Pending application of Net Proceeds pursuant to this covenant, we may temporarily reduce revolving credit borrowings or otherwise invest such Net Proceeds in any manner that is not prohibited by the indenture.

Any Net Proceeds from Asset Sales that are not applied or invested as provided in the preceding paragraph will be deemed to constitute “Excess Proceeds.” When the aggregate amount of Excess Proceeds exceeds $10.0 million, we will be required to make an offer to all holders of notes and other Indebtedness ranking on a parity with the notes containing provisions similar to those set forth in the indenture with respect to offers to purchase with the proceeds of sales of assets (an “Asset Sale Offer”) to purchase the maximum principal amount of notes and other Indebtedness ranking on a parity with the notes, pro rata, that may be purchased out of the Excess Proceeds at an offer price in cash in an amount equal to 100% of the principal amount thereof (or the accreted value of such Indebtedness, if such other Indebtedness is issued at a discount), plus accrued and unpaid interest, if any, thereon to the date of purchase, in accordance with the procedures set forth in the indenture. To the extent that any Excess Proceeds remain after consummation of an Asset Sale Offer, we may use such Excess Proceeds for any purpose not otherwise prohibited by the indenture. If the aggregate principal amount of notes and other Indebtedness ranking on a parity with the notes tendered into such Asset Sale Offer exceeds the amount of Excess Proceeds, the trustee shall select the notes and other Indebtedness ranking on a parity with the notes to be purchased on a pro rata basis. Upon completion of such offer to purchase, the amount of Excess Proceeds will be reset at zero.

We will comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of notes pursuant to the covenant described hereunder. To the extent that the provisions of any securities laws or regulations conflict with provisions of the covenant described hereunder, we will comply with the applicable securities laws and regulations and will not be deemed to have breached our obligations under the covenant described in this section.

Limitation on Restrictions on Distributions from Restricted Subsidiaries. We will not, and will not permit any Restricted Subsidiary to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the right of any Restricted Subsidiary to:

(1) pay dividends or make any other distributions on its Capital Stock to us or any of our Restricted Subsidiaries or pay any indebtedness owed to us or our Restricted Subsidiaries;

(2) make loans or advances to us or any of our Restricted Subsidiaries; or

(3) transfer any of its properties or assets to us or any of our Restricted Subsidiaries.

The foregoing limitations will not apply to encumbrances or restrictions existing under or by reason of:

(1) Existing Indebtedness as in effect on the date of the indenture;

(2) agreements existing on the date of the indenture, and any amendments, modifications, restatements, renewals, extensions, supplements, refundings, replacements or refinancings thereof, provided that such amendments, modifications, restatements, renewals, extensions, supplements, refundings, replacements or refinancings are no more restrictive, taken as a whole, with respect to dividend and other payment restrictions than those contained in agreements as in effect on the date of the indenture, as determined in good faith by our board of directors;

(3) the indenture and the notes;

(4) applicable law;

(5) any instrument governing Indebtedness or Capital Stock of any entity that we or any of our Restricted Subsidiaries acquire as in effect at the time of such acquisition (except to the extent such Indebtedness or Capital Stock was incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any entity, or the properties or assets of any entity, other than the entity, or the property or assets of the entity, so acquired, provided that, in the case of Indebtedness, such Indebtedness was permitted by the terms of the indenture to be incurred;

83

(6) customary non-assignment provisions in leases, licenses and other agreements entered into in the ordinary course of business;

(7) purchase money obligations for property acquired in the ordinary course of business that impose restrictions of the nature described in clause (3) of the preceding paragraph on the property so acquired;

(8) any agreement for the sale of a Restricted Subsidiary (whether by stock sale, asset sale, merger, consolidation or otherwise) that restricts distributions by such Restricted Subsidiary pending its sale;

(9) Permitted Refinancing Indebtedness, provided that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are no more restrictive, taken as a whole (as determined in good faith by our board of directors), than those contained in the agreements governing the Indebtedness being refinanced;

(10) secured Indebtedness otherwise permitted to be incurred pursuant to the provisions of the covenant described under the caption “Limitation on Liens” that limits the right of the debtor to dispose of the assets securing such Indebtedness;

(11) customary provisions with respect to the disposition or distribution of assets or property in joint venture agreements and other similar agreements entered into in the ordinary course of business;

(12) restrictions on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business;

(13) restrictions relating to preferred stock of any guarantor that require that due and payable dividends thereon be paid in full prior to dividends on such guarantor’s common stock; or

(14) restrictions on the assets of any guarantor imposed by any agreement or charter provision evidencing Indebtedness or Capital Stock of such guarantor that is otherwise permitted under the indenture; provided, however, that the provisions relating to such encumbrance or restriction contained in such agreement or charter provision are not less favorable to us in any material respect as determined in good faith by our board of directors than the provisions relating to such encumbrance or restriction contained in the indenture.

Limitation on Transactions with Affiliates. We will not, and will not permit any Restricted Subsidiary to, directly or indirectly, make any payment to, or sell, lease, transfer or otherwise dispose of any of our or its properties or assets to, or purchase any property or assets from, or enter into or make or amend, renew or extend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an “Affiliate Transaction”), unless:

(1) such Affiliate Transaction is on terms that are no less favorable to us or such Restricted Subsidiary than those that might reasonably have been obtained in a comparable arm’s-length transaction by us or such Restricted Subsidiary with an unrelated person or entity;

(2) if such Affiliate Transaction or series of related Affiliate Transactions involves aggregate consideration in excess of $5.0 million, either (x) our board of directors (including a majority of the disinterested members of the board of directors) approves such Affiliate Transaction and, in its good faith judgment, believes that such Affiliate Transaction complies with clause (1) of this paragraph as evidenced by a resolution of our board of directors promptly delivered to the trustee or (y) if there are no disinterested members of our board of directors, we comply with the fairness opinion requirement of clause (3) of this paragraph with respect to such Affiliate Transaction; and

(3) if such Affiliate Transaction or series of related Affiliate Transactions involves aggregate consideration in excess of $10.0 million, we deliver to the trustee an opinion as to the fairness to us or such Restricted Subsidiary of such Affiliate Transaction from a financial point of view issued by an accounting, appraisal or investment banking firm of national standing.

84

The following items will not be deemed to be Affiliate Transactions and, therefore, will not be subject to the provisions of the prior paragraph:

(1) any employment agreement, employee benefit plan or stock option plan entered into by us or any of our Restricted Subsidiaries or the issuance of securities or other payments, awards or grants in cash, securities or otherwise pursuant thereto in the ordinary course of business that has been approved by a majority of the disinterested members of our board of directors;

(2) transactions between or among us and our Restricted Subsidiaries;

(3) Restricted Payments that are permitted by the provisions of the indenture described above under the caption “Limitation on Restricted Payments”;

(4) reasonable and customary directors’ fees, indemnification and similar arrangements and payments thereunder by us or any of our Restricted Subsidiaries;

(5) loans or advances to employees of us or any of our Restricted Subsidiaries in the ordinary course of business, provided that the aggregate amount of all such loans and advances at any time outstanding shall not exceed $2.0 million;

(6) any agreement as in effect as of the date of the indenture or any amendment thereto (so long as any such amendment, taken as a whole, is not disadvantageous to the holders of the notes in any material respect) or any transaction contemplated thereby;

(7) the issuance of our Capital Stock or other Equity Interests (other than Disqualified Stock) or the making of other capital contributions to us; and

(8) the payment of $2.0 million to James R. Hull and the payment of $2.7 million to ABRY Partners LLC.

Limitation on Issuances and Sales of Equity Interests in Restricted Subsidiaries. We will not transfer, convey, sell, lease or otherwise dispose of, and will not permit any of our Restricted Subsidiaries to issue, transfer, convey, sell, lease or otherwise dispose of any Equity Interests in any Restricted Subsidiary of ours (other than the issuance of directors’ qualifying shares or an immaterial number of shares required by applicable law to be held by a person or entity other than us or a Restricted Subsidiary and excluding any pledge of Equity Interests of any Restricted Subsidiary) to any person or entity (other than us or a Wholly Owned Restricted Subsidiary of ours), except:

(1) if, immediately after giving effect to such issuance, transfer, conveyance, sale, lease or other disposition, such Restricted Subsidiary would no longer constitute a Restricted Subsidiary and any Investment in such person or entity remaining after giving effect to such issuance or sale would have been permitted to be made under the “Limitation on Restricted Payments” covenant if made on the date of such issuance or sale;

(2) sales of common stock of a Restricted Subsidiary by us or a Restricted Subsidiary, provided that we or such Restricted Subsidiary comply with the “Limitation on Asset Sale” covenant; or

(3) sales of Disqualified Stock or Preferred Stock of a guarantor by us or a guarantor that are otherwise permitted under the “Limitation on Debt and Issuance of Disqualified Stock” covenant, provided that we or such guarantor comply with the “Limitation on Asset Sale” covenant.

Additional Note Guarantees. If (1) we or any of our Domestic Restricted Subsidiaries acquires or creates another Domestic Restricted Subsidiary or (2) an Unrestricted Subsidiary of ours is redesignated as a Restricted Subsidiary or otherwise ceases to be an Unrestricted Subsidiary and thereafter is a Domestic Restricted Subsidiary, then such newly acquired, created or redesignated Domestic Restricted Subsidiary shall execute a supplemental indenture becoming a guarantor of the notes in accordance with the terms of the indenture.

85

In addition, we will not permit any of our Restricted Subsidiaries, directly or indirectly, to guarantee or pledge any assets to secure the payment of any other Indebtedness of ours or any guarantor unless such Restricted Subsidiary is a guarantor of the notes or simultaneously executes and delivers a supplemental indenture providing for the guarantee of the payment of the notes by such Restricted Subsidiary, which guarantee shall be senior to or ranking in parity with such Subsidiary’s guarantee of or pledge to secure such other Indebtedness unless such other Indebtedness is Senior Debt, in which case the guarantee of the notes may be subordinated to the guarantee of such Senior Debt to the same extent as the notes are subordinated to such Senior Debt.

A guarantor may not sell or otherwise dispose of all or substantially all of its assets to, or consolidate with or merge with or into (whether or not such guarantor is the surviving entity), another person or entity, other than us or another guarantor, unless:

(1) immediately after giving effect to that transaction, no Default or Event of Default exists; and

(2) either:

(a) the person or entity acquiring the property in any such sale or disposition or the entity formed by or surviving any such consolidation or merger (if other than the guarantor) is a corporation, partnership, limited liability company or business trust organized or existing under the laws of the United States, any state thereof or the District of Columbia and assumes all the obligations of that guarantor under the indenture, its note guarantee and the registration rights agreement pursuant to a supplemental indenture satisfactory to the trustee; or

(b) such sale or other disposition complies with the “Limitation on Asset Sale” covenant of the indenture, including the application of the Net Proceeds therefrom.

The note guarantee of a guarantor will be released:

(1) in connection with any sale of all of the Capital Stock of a guarantor to a person or entity other than us or a Restricted Subsidiary of ours (either before or after giving effect to such transaction), if the sale of all such Capital Stock of that guarantor complies with the “Limitation on Asset Sales” covenant of the indenture; or

(2) if we properly designate any Restricted Subsidiary that is a guarantor as an Unrestricted Subsidiary.

No Senior Subordinated Debt. We will not incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is subordinate or junior in right of payment to any of our Senior Debt and senior in any respect in right of payment to the notes. No guarantor will incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is subordinate or junior in right of payment to any Senior Debt of such guarantor and senior in any respect in right of payment to such guarantor’s note guarantee. No Indebtedness of ours or any guarantor shall be deemed to be subordinated in right of payment to any other Indebtedness of ours or such guarantor solely by virtue of being unsecured.

Business Activities. We will not, and will not permit any Restricted Subsidiary to, engage in any business other than Permitted Businesses, except to such extent as would not be material to us and our Restricted Subsidiaries taken as a whole.

Payments for Consent. Neither we nor any of our Restricted Subsidiaries will, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any holder of any notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of the indenture or the notes unless such consideration is offered to be paid or is paid to all holders of the notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement.

86

Merger, Consolidation and Sale of Assets

We will not consolidate or merge with or into (whether or not we are the surviving corporation), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of our properties or assets in one or more related transactions, to another person or entity unless:

(1) we are the surviving corporation or the entity formed by or surviving any such consolidation or merger (if other than us) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made is a corporation, partnership, limited liability company or business trust organized or existing under the laws of the United States, any state thereof or the District of Columbia;

(2) the entity formed by or surviving any such consolidation or merger (if other than us) or the person or entity to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made assumes all our obligations under the notes and the indenture pursuant to a supplemental indenture in a form reasonably satisfactory to the trustee;

(3) immediately after such transaction no Default or Event of Default exists; and

(4) except in the case of a merger of us with or into our Wholly Owned Restricted Subsidiary, immediately after giving effect to such transaction on a pro forma basis, we or the entity formed by or surviving any such consolidation or merger (if other than us), or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made:

(a) will have Consolidated Net Worth immediately after the transaction equal to or greater than our Consolidated Net Worth immediately preceding the transaction; and

(b) will, on the date of such transaction after giving pro forma effect thereto and any related financing transactions as if such transaction had occurred at the beginning of the applicable latest full fiscal quarter, be permitted to incur at least $1.00 of additional Indebtedness under clause (1) of the first paragraph of the “Limitation on Debt and Issuance of Disqualified Stock” covenant,

provided, however, that clause (4) above shall not apply if the principal purpose of such transaction is to change our state of incorporation and any such transaction shall not have as one of its purposes the evasion of the foregoing limitations.

Securities and Exchange Commission Reports

Whether or not required by the Securities and Exchange Commission, so long as any notes are outstanding, we will furnish to the holders of notes, within the time periods specified in the Securities and Exchange Commission’s rules and regulations:

(1) all quarterly and annual financial information that would be required to be contained in a filing with the Securities and Exchange Commission on Forms 10-Q and 10-K if we were required to file such forms, including a “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and, with respect to the annual information only, a report on the annual financial statements by our certified independent accountants; and

(2) all current reports that would be required to be filed with the Securities and Exchange Commission on Form 8-K if we were required to file such reports.

In addition, whether or not required by the Securities and Exchange Commission, we will file a copy of all of the information and reports referred to in clauses (1) and (2) above with the Securities and Exchange Commission for public availability within the time periods specified in the Securities and Exchange Commission’s rules and regulations (unless the Securities and Exchange Commission will not accept such a filing). In addition, we and the guarantors have agreed that, for so long as any notes remain outstanding, we will furnish to the holders, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.

87

If we have designated any of our Subsidiaries as Unrestricted Subsidiaries, then the quarterly and annual financial information required by the preceding paragraph must include a reasonably detailed presentation, either on the face of the financial statements or in the footnotes thereto, and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of the financial condition and results of operations of us and our Restricted Subsidiaries separate from the financial condition and results of operations of our Unrestricted Subsidiaries.

Events of Default

Each of the following constitutes an Event of Default under the indenture:

(1) default for 30 days in the payment when due of interest on the notes (whether or not prohibited by the subordination provisions of the indenture);

(2) default in payment when due of the principal of, or premium, if any, on the notes (whether or not prohibited by the subordination provisions of the indenture);

(3) failure by us or any of our Restricted Subsidiaries to comply with the provisions described under the captions “—Repurchase at the Option of Holders Upon a Change of Control,” “Limitation on Asset Sales” (whether or not prohibited by the subordination provisions of the indenture) or “Merger, Consolidation and Sale of Assets”;

(4) failure by us or any of our Restricted Subsidiaries to comply with any of our or its other agreements in the indenture or the notes, which default continues for a period of 30 days after we receive written notice thereof specifying the default from the trustee or holders of at least 25% in aggregate principal amount of outstanding notes;

(5) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by us or any of our Restricted Subsidiaries (or the payment of which is guaranteed by us or any of our Restricted Subsidiaries) whether such Indebtedness or guarantee now exists, or is created after the date of the indenture, if that default:

(a) is caused by a failure to pay at the stated maturity the principal of, or interest or premium, if any, on such Indebtedness (a “Payment Default”); or

(b) results in the acceleration of such Indebtedness prior to its stated maturity,

and, in each case, the principal amount of any such Indebtedness, together with the aggregate principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $10.0 million or more;

(6) failure by us or any of our Significant Subsidiaries to pay final, non-appealable judgments aggregating in excess of $10.0 million (which are not covered by insurance as to which the insurer has not disclaimed coverage) that remain undischarged for a period (during which execution shall not be effectively stayed) of 60 days;

(7) default by any guarantor that is a Significant Subsidiary or by a group of guarantors that, taken together, would be a Significant Subsidiary in the performance of any covenant set forth in its or their note guarantee(s), written repudiation by any guarantor that is a Significant Subsidiary of its obligations under its note guarantee or by a group of guarantors that, taken together, would be a Significant Subsidiary of their note guarantees, or the judicial determination that any note guarantee is unenforceable against a guarantor that is a Significant Subsidiary or against a group of guarantors that, taken together, would constitute a Significant Subsidiary; and

(8) certain events of bankruptcy or insolvency with respect to us, any Significant Subsidiary or any Group of Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary.

88

If any Event of Default occurs and is continuing, the trustee or the holders of at least 25% in principal amount of the then outstanding notes may declare all the notes to be due and payable immediately by notice in writing to us and the trustee specifying the respective Event of Default and that it is a “notice of acceleration.” In the event of a declaration of acceleration of the notes because an Event of Default described in clause (5) above has occurred and is continuing, the declaration of acceleration of the notes shall be automatically annulled if the event of default or payment default triggering such Event of Default pursuant to clause (5) shall be remedied or cured by us or a Restricted Subsidiary of ours or waived by the holders of the relevant Indebtedness within 20 days after the declaration of acceleration of the notes with respect thereto and if (A) the annulment of the acceleration of the notes would not conflict with any judgment or decree of a court of competent jurisdiction and (B) all existing Events of Default, except nonpayment of principal, premium or interest on the notes that became due solely because of the acceleration of the notes, have been cured or waived. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, with respect to us, any Significant Subsidiary or any group of Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary, all outstanding notes will become due and payable without further action or notice. Holders of the notes may not enforce the indenture or the notes except as provided in the indenture. Subject to certain limitations, holders of a majority in principal amount of the then outstanding notes may direct the trustee in its exercise of any trust or power. The trustee may withhold from holders of the notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal, premium, if any, or interest) if it determines that withholding notice is in their interest.

At any time after a declaration of acceleration with respect to the notes as described in the preceding paragraph, the holders of a majority in principal amount of the notes then outstanding (by notice to the trustee) may rescind and cancel such declaration and its consequences if:

(1) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction;

(2) all existing Defaults and Events of Default have been cured or waived except nonpayment of principal of or interest on the notes that has become due solely by such declaration of acceleration;

(3) to the extent the payment of such interest is lawful, interest (at the same rate specified in the notes) on overdue installments of interest and overdue payments of principal, premium, if any, and interest which has become due otherwise than by such declaration of acceleration, has been paid;

(4) we have paid the trustee its reasonable compensation and reimbursed the trustee for its reasonable expenses, disbursements and advances; and

(5) in the event of the cure or waiver of a Default or Event of Default of the type described in clause (8) of the first paragraph under this caption, the trustee has received an officers’ certificate and opinion of counsel that such Default or Event of Default has been cured or waived.

The holders of a majority in aggregate principal amount of the notes then outstanding by notice to the trustee may on behalf of the holders of all of the notes waive any existing Default or Event of Default and its consequences under the indenture except a continuing Default or Event of Default in the payment of principal of or interest on the notes.

We are required to deliver to the trustee annually a statement regarding compliance with the indenture, and we are required upon becoming aware of any Default or Event of Default, to deliver to the trustee a statement specifying such Default or Event of Default.

Amendments and Waivers

Subject to exceptions, the indenture may be amended with the consent of the registered holders of a majority in aggregate principal amount of the notes then outstanding (including consents obtained in connection with a purchase of, or tender offer or exchange offer for, the notes) and any past default or compliance with any

89

provisions may also be waived (except a default in the payment of principal, premium or interest and certain covenants and provisions of the indenture which cannot be amended without the consent of each holder of an outstanding note) with the consent of the registered holders of at least a majority in aggregate principal amount of the notes then outstanding (including consents obtained in connection with a purchase of, or tender offer or exchange offer for, the notes). However, without the consent of each holder affected thereby, no amendment may, among other things:

(1) reduce the amount of notes whose holders must consent to an amendment, supplement or waiver;

(2) reduce the principal of or change the fixed maturity of any note or change the date on which any notes may be subject to redemption or repurchase, reduce the redemption or repurchase price of the notes, or waive any payment with respect to the redemption of the notes (except as would otherwise be permitted under clause (9) hereof);

(3) reduce the rate of or change the time for payment of interest on any note;

(4) waive a Default or Event of Default in the payment of principal of, or premium or interest on, the notes (except a rescission of acceleration of the notes by the holders of at least a majority in aggregate principal amount of the notes and a waiver of the payment default that resulted from such acceleration);

(5) make any note payable in money other than U.S. dollars;

(6) make any change in the provisions of the indenture relating to waivers of past Defaults or the rights of holders of notes to receive payments of principal of, or premium or interest on, the notes;

(7) release any guarantor from any of its obligations under its note guarantee or the indenture, except in accordance with the terms of the indenture;

(8) impair the right to institute suit for the enforcement of any payment on or with respect to the notes or the note guarantees;

(9) after our obligation to purchase the notes arises under the indenture, amend, change or modify our obligation to make and consummate an Asset Sale Offer with respect to any Asset Sale in accordance with the “Limitation on Asset Sales” covenant or our obligation to make and consummate a Change of Control Offer in the event of a Change of Control in accordance with the “Repurchase at the Option of Holders Upon a Change of Control” covenant, including, in each case, amending, changing or modifying any definition relating thereto;

(10) amend or modify any of the provisions of the indenture or the related definitions affecting the subordination or ranking of the notes or any note guarantee in any manner adverse to the holders of the notes or any note guarantee; or

(11) make any change in the foregoing amendment and waiver provisions.

Without the consent of any holder of the notes, we and the trustee may amend the indenture to:

• cure any ambiguity, omission, defect or inconsistency;

• provide for uncertificated notes in addition to or in place of certificated notes;

• provide for the assumption of our obligations to holders of notes in the case of a merger or consolidation or sale of all or substantially all of our assets;

• make any change that would provide any additional rights or benefits to the holders of notes or that does not adversely affect the legal rights under the indenture of any such holder in any material respect;

• comply with requirements of the Securities and Exchange Commission in order to effect or maintain the qualification of the indenture under the Trust Indenture Act; or

• reflect the release of any guarantor from its note guarantee or add any guarantor pursuant to and in the manner provided by the indenture.

90

Defeasance

We may, at our option and at any time, elect to have all of its obligations discharged with respect to the outstanding notes and all obligations of the guarantors discharged with respect to their note guarantees (“Legal Defeasance”) except for:

(1) the rights of holders of outstanding notes to receive payments in respect of the principal of, or interest or premium on such notes when such payments are due from the trust referred to below;

(2) our obligations with respect to the notes concerning issuing temporary notes, registration of notes, mutilated, destroyed, lost or stolen notes and the maintenance of an office or agency for payment and money for security payments held in trust;

(3) the rights, powers, trusts, duties and immunities of the trustee, and our and the guarantors’ obligations in connection therewith; and

(4) the Legal Defeasance provisions of the indenture.

In addition, we may, at our option and at any time, elect to have our obligations and the guarantors’ obligations released with respect to certain covenants that are described in the indenture (“Covenant Defeasance”) and thereafter any omission to comply with those covenants will not constitute a Default or Event of Default with respect to the notes. In the event Covenant Defeasance occurs, certain events (not including non-payment, bankruptcy, receivership, rehabilitation and insolvency events) described under “Events of Default” will no longer constitute an Event of Default with respect to the notes.

In order to exercise either Legal Defeasance or Covenant Defeasance:

(1) we must irrevocably deposit with the trustee, in trust, for the benefit of the holders of the notes, cash in U.S. dollars, non-callable U.S. Government Obligations, or a combination of cash in U.S. dollars and non-callable U.S. Government Obligations, in amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, or interest and premium, if any, on the outstanding notes on the stated maturity or on the applicable redemption date, as the case may be, and we must specify whether the notes are being defeased to maturity or to a particular redemption date;

(2) in the case of Legal Defeasance, we have delivered to the trustee an opinion of counsel in the United States reasonably acceptable to the trustee confirming that (a) we have received from, or there has been published by, the Internal Revenue Service a ruling or (b) since the date of the indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such opinion of counsel will confirm that, the holders of the outstanding notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred;

(3) in the case of Covenant Defeasance, we have delivered to the trustee an opinion of counsel in the United States reasonably acceptable to the trustee confirming that the holders of the outstanding notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner at the same times as would have been the case if such Covenant Defeasance had not occurred;

(4) no Default or Event of Default has occurred and is continuing on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit) or insofar as Events of Default from bankruptcy or insolvency events are concerned, at any time in the period ending on the 123rd day after the date of deposit;

(5) such Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a default under any material agreement or instrument (other than the Indenture) to which we or any of our Subsidiaries is a party or by which we or any of our Subsidiaries is bound;

91

(6) we must deliver to the trustee an officers’ certificate stating that the deposit was not made by us with the intent of preferring the holders of notes over our other creditors with the intent of defeating, hindering, delaying or defrauding our creditors or others;

(7) if the notes are to be redeemed prior to their stated maturity, we must deliver to the trustee irrevocable instructions to redeem all of the notes on the specified redemption date; and

(8) we must deliver to the trustee an officers’ certificate and an opinion of counsel, each stating that all conditions precedent relating to the Legal Defeasance or the Covenant Defeasance have been complied with.

An opinion of counsel required by clauses (2) and (3) above need not be delivered if all notes not previously delivered to the trustee for cancellation:

• have become due and payable;

• will become due and payable on the maturity date within one year; or

• are to be called for redemption within one year under arrangements satisfactory to the trustee for the giving of notice of redemption by the trustee in our name, and at our expense.

Governing Law

The indenture and the notes are governed by the laws of the State of New York.

The Trustee

The Bank of New York Trust Company, N.A. is the trustee under the indenture.

Except during the continuance of an Event of Default, the trustee will perform only such duties as are specifically set forth in the indenture. During the existence of an Event of Default, the trustee will exercise such of the rights and powers vested in it under the indenture and use the same degree of care and skill in its exercise as a prudent person would exercise under the circumstances in the conduct of such person’s own affairs.

No Personal Liability of Directors, Officers, Employees, Incorporators and Shareholders

None of our directors, officers, employees, incorporators or shareholders, as such, shall have any liability for any of our obligations under the notes or the indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each holder of notes by accepting a note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the notes.

Definitions

Set forth below are certain of the defined terms used in the Description of Notes above. Reference is made to the indenture for the definition of all other capitalized terms used herein for which no definition is provided.

“Acquired Debt” means, with respect to any specified entity:

(1) Indebtedness of any other entity existing at the time such other entity is merged with or into or becomes a Restricted Subsidiary of such specified entity, including, without limitation, Indebtedness incurred in connection with, or in contemplation of, such other entity merging with or into or becoming a Restricted Subsidiary of such specified entity; and

(2) Indebtedness secured by a lien encumbering any asset acquired by such specified entity.

“Affiliate” of any specified person or entity means any other person or entity directly or indirectly controlling or controlled by or under direct or indirect common control with such specified person or entity. For

92

purposes of this definition, “control” (including, with correlative meanings, the terms “controlling,” “controlled by” and “under common control with”), as used with respect to any person or entity, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such person or entity, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the Voting Stock of a person or entity shall be deemed to be control.

“Asset Sale” means:

(1) the sale, lease, conveyance or other disposition of any assets or rights (including, without limitation, by way of a sale and leaseback and excluding any pledge of, or the creation, incurrence, assumption or sufferance to exist of any other lien on assets by us or any of our Restricted Subsidiaries), other than sales of inventory in the ordinary course of business, and

(2) the issue or sale by us or any of our Subsidiaries of Equity Interests in any of our Restricted Subsidiaries (excluding directors’ qualifying shares or an immaterial number of shares required by applicable law to be held by a person or entity other than us or a Restricted Subsidiary and excluding any pledge of Equity Interests of ours or any of our Restricted Subsidiaries),

in the case of either clause (1) or (2), whether in a single transaction or a series of related transactions that have a fair market value in excess of $3.0 million.

Notwithstanding the foregoing, the following items shall not be deemed to be Asset Sales:

(1) a transfer of assets by us to a Restricted Subsidiary or by a Restricted Subsidiary to us or to another Restricted Subsidiary;

(2) an issuance of Equity Interests by a Restricted Subsidiary to us or to our Wholly Owned Restricted Subsidiary;

(3) the sale of excess or obsolete assets, in the ordinary course of business;

(4) a Restricted Payment that is permitted by the covenant described above under the caption “Restricted Payments”;

(5) transactions covered by the “Merger, Consolidation or Sale of Assets” covenant;

(6) any transaction that constitutes a Change of Control;

(7) dispositions or foreclosure in connection with Permitted Liens; and

(8) the licensing or sublicensing of intellectual property or other general intangibles and licenses, leases or subleases of other property in the ordinary course of business and which do not materially interfere with the business of us and our Restricted Subsidiaries.

“Capital Lease Obligation” means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized on a balance sheet in accordance with GAAP.

“Capital Stock” means (1) in the case of a corporation, capital stock, (2) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of capital stock, (3) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited) and (4) any other interest or participation that confers on a person or entity the right to receive a share of the profits and losses of, or distributions of assets of, the issuing person or entity.

“Cash Equivalents” means:

(1) United States dollars;

93

(2) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof (provided that the full faith and credit of the United States is pledged in support thereof) having maturities of not more than one year from the date of acquisition, unless we deposit such securities to defease any Indebtedness;

(3) certificates of deposit and eurodollar time deposits with maturities of one year or less from the date of acquisition, bankers’ acceptances with maturities not exceeding one year and overnight bank deposits, in each case with any domestic commercial bank having capital and surplus in excess of $250 million and outstanding debt which is rated “A” (or such similar equivalent rating) or higher by at least one nationally recognized statistical rating organization (as defined in Rule 436 under the Securities Act);

(4) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (2) and (3) above entered into with any financial institution meeting the qualifications specified in clause (3) above;

(5) commercial paper having the highest rating obtainable from Moody’s Investors Service, Inc., Standard & Poors, a division of The McGraw-Hill Companies, Inc., or any successors to their respective rating agency business and in each case maturing within six months after the date of acquisition;

(6) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within six months from the date of acquisition thereof and, at the time of acquisition, having one of the two highest ratings obtainable from either Standard & Poors, a division of The McGraw-Hill Companies, Inc., Moody’s Investors Service, Inc., or any successors to their respective rating agency business; and

(7) money market funds at least 95% of the assets of which constitute Cash Equivalents of the kinds described in clauses (1) through (6) of this definition.

“Consolidated Cash Flow” means, with respect to any person or entity for any period, the Consolidated Net Income of such person or entity for such period plus, to the extent deducted in computing such Consolidated Net Income:

(1) provision for taxes based on income or profits of such person or entity and its Restricted Subsidiaries;

(2) consolidated interest expense of such person or entity and its Restricted Subsidiaries, whether paid or accrued and whether or not capitalized (including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers’ acceptance financings, and net costs (if any) pursuant to Hedging Obligations); and

(3) depreciation, amortization (including amortization of goodwill and other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash charges (excluding any such non-cash charges to the extent that it represents an accrual of or reserve for cash payments to be made in any future period or amortization of a prepaid cash expense that was paid in a prior period) of such person or entity and its Restricted Subsidiaries.

Notwithstanding the foregoing, the Net Income of any Unrestricted Subsidiary shall be excluded, whether or not distributed to us or one of our Restricted Subsidiaries.

“Consolidated Net Income” means, with respect to any person or entity for any period, the aggregate of the Net Income of such person or entity and its Restricted Subsidiaries for such period, on a consolidated basis determined in accordance with GAAP; provided that

(1) the Net Income of any entity that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash to the specified entity or a Restricted Subsidiary thereof;

94

(2) the Net Income of any Restricted Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by such Restricted Subsidiary of such Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary or its equityholders;

(3) the Net Income of any entity acquired during the specified period for any period prior to the date of such acquisition shall be excluded;

(4) any extraordinary gain or loss, together with any related provision for taxes on such gain or loss, shall be excluded;

(5) any gain or loss resulting from Asset Sales (without regard to the $3.0 million limitation set forth in the definition thereof) or abandonments or reserves relating thereto and the related tax effects shall be excluded;

(6) any gain or loss from foreign exchange transactions shall be excluded;

(7) the cumulative effect of a change in accounting principles shall be excluded;

(8) the Net Income (but not loss) of any Unrestricted Subsidiary shall be excluded, whether or not distributed to the specified entity or one of its Subsidiaries;

(9) any non-cash compensation expense in connection with the issuance of employee or independent contractor stock options shall be excluded; and

(10) any amount paid or accrued as dividends on preferred stock of ours or any Guarantor owned by persons or entities other than us and any of our Restricted Subsidiaries shall be excluded.

“Consolidated Net Worth” means, with respect to any specified entity as of any date, the sum of:

(1) the consolidated equity of the common stockholders of such entity and its consolidated Restricted Subsidiaries as of such date; plus

(2) the respective amounts reported on such person’s or entity’s balance sheet as of such date with respect to any series of preferred stock (other than Disqualified Stock) that by its terms is not entitled to the payment of dividends unless such dividends may be declared and paid only out of net earnings in respect of the year of such declaration and payment, but only to the extent of any cash received by such person or entity upon issuance of such preferred stock.

“Continuing Directors” means, as of any date of determination, any member of the board of directors of us or a Holding Company, as applicable, who (1) was a member of the board of directors on the date of the indenture or (2) was nominated for election or elected to the board of directors with the approval of a majority of the Continuing Directors who were members of the board of directors at the time of such nomination or election or (3) was a Permitted Holder or a representative of a Permitted Holder.

“Credit Agreement” means that certain credit agreement entered into as of the date of the indenture, by and among us, certain lenders and other financial institutions and Fleet National Bank, as administrative agent for such lenders and financial institutions, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, modified, restated, renewed, refunded, replaced or refinanced from time to time, including any agreement extending the maturity of, refinancing, replacing or otherwise restructuring (including by way of adding our Restricted Subsidiaries as borrowers or guarantors thereunder) all of or a portion of the Indebtedness under such agreement or any such successor or replacement agreement and whether by the same or any other agent, lender or group of lenders (or other institutions) or otherwise.

“Default” means any event which is, or after notice or passage of time or both would be, an Event of Default.

95

“Designated Senior Debt” means (1) Indebtedness outstanding under the Credit Agreement and (2) any other Senior Debt which, at the date of determination, has an aggregate principal amount outstanding of, or under which, at the date of determination, the holders thereof are committed to lend up to, at least $20.0 million and which we specifically designate in the instrument evidencing or governing such Senior Debt as “Designated Senior Debt” for purposes of the indenture.

“Disqualified Stock” means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, at the option of the holder thereof), or upon the happening of any event other than an initial public offering of Equity Interests matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder thereof, in whole or in part, on or prior to the date that is 91 days after the earlier of the stated maturity date of the notes or the date on which no notes remain outstanding; provided that only the portion of Capital Stock which so matures or is mandatorily redeemable or is so redeemable at the sole option of the holder thereof prior to such date shall be deemed Disqualified Capital Stock; provided, further, that any Capital Stock that would constitute Disqualified Stock solely because the holders thereof have the right to require us to repurchase such Capital Stock upon the occurrence of a Change of Control or an Asset Sale shall not constitute Disqualified Stock, if the terms of such Capital Stock provide that we may not repurchase or redeem any such Capital Stock pursuant to such provisions prior to our repurchase of such notes as are required to be repurchased pursuant to the “Limitation on Asset Sales” and “Repurchase at the Option of Holders Upon a Change of Control” covenants. Notwithstanding the foregoing, our Capital Stock owned by James R. Hull on the date of the indenture shall not constitute Disqualified Stock by reason of his right to require us to repurchase such Capital Stock pursuant to the terms of his agreement with us dated August 18, 2003.

“Domestic Restricted Subsidiary” of an entity means, at any date of determination, any Restricted Subsidiary of such entity that (1) is organized under the laws of the United States, any State thereof or the District of Columbia as of such date or (2) is not so organized but, due to an election or otherwise, for any taxable year (or a portion thereof) that includes such date (a) is treated as a domestic entity for United States federal income tax purposes or (b) is treated as a partnership or a division of a domestic entity for United States federal income tax purposes.

“Equity Interests” means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock).

“Event of Default” has the meaning set forth under the caption “Events of Default.”

“Existing Indebtedness” means Indebtedness of ours and our Restricted Subsidiaries (other than Indebtedness under the Credit Agreement and Indebtedness being repaid on the date of the indenture) in existence on the date of the indenture, until such amounts are repaid.

“Hedging Obligation” of any person or entity means the obligations of such person or entity under:

(1) interest rate protection agreements, interest rate swap agreements, interest rate cap agreements and interest rate collar agreements, interest rate futures and interest rate options;

(2) other agreements or arrangements designed to protect such person or entity against fluctuations in interest rates; and

(3) any foreign exchange contract, currency swap agreement or other similar agreement or arrangement.

“Holding Company” means any company as to which we are, directly or indirectly, a wholly-owned Subsidiary.

96

“Indebtedness” means, with respect to any person or entity, any indebtedness of such person or entity, whether or not contingent, in respect of:

(1) borrowed money;

(2) evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof);

(3) banker’s acceptances;

(4) Capital Lease Obligations;

(5) the balance deferred and unpaid of the purchase price of any property, except any such balance that constitutes an accrued expense or trade payable; or

(6) any Hedging Obligations;

if and to the extent any of the preceding items (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of such person or entity prepared in accordance with GAAP. In addition, the term “Indebtedness” includes all Indebtedness of others secured by a lien on any asset of the specified person or entity (whether or not such Indebtedness is assumed by such person or entity), the amount of such Indebtedness being deemed to be the lesser of the value of such property or asset or the amount of the Indebtedness so secured and, to the extent not otherwise included, the guarantee by such person or entity of any indebtedness of any other person or entity; provided that Indebtedness shall not include:

(x) any amounts withheld by us or any Restricted Subsidiary from the purchase price paid for the purchase of subscriber accounts;

(y) Indebtedness in respect of letters of credit to support workers compensation obligations, performance bonds, bankers’ acceptances and surety or appeal bonds provided by us or any of our Restricted Subsidiaries to customers in the ordinary course of business; and

(z) Indebtedness arising from agreements providing for indemnification, adjustment of purchase price or similar obligations, or from guarantees or letters of credit, surety bonds or performance bonds securing any obligations of us or any of our Restricted Subsidiaries pursuant to such agreements, in each case incurred in connection with the disposition of any of our business assets or Restricted Subsidiaries (other than guarantees of Indebtedness or other obligations incurred by any person or entity acquiring all or any portion of our business assets or Restricted Subsidiaries for the purpose of financing such acquisition) in a principal amount not to exceed the gross proceeds we or any of our Restricted Subsidiaries actually receive in connection with such disposition.

The amount of any Indebtedness outstanding as of any date shall be:

(1) the accreted value thereof, in the case of any Indebtedness issued with original issue discount; and

(2) the principal amount thereof, together with any interest thereon that is more than 30 days past due, in the case of any other Indebtedness.

“Investments” means, with respect to any person or entity, all investments by such person or entity in other persons or entities (including Affiliates) in the forms of direct or indirect loans (including guarantees of Indebtedness or other obligations), advances or capital contributions (excluding (1) commission, travel and similar advances to officers and employees made in the ordinary course of business and (2) advances to customers or suppliers in the ordinary course of business that are, in conformity with GAAP, recorded as accounts receivable, prepaid expenses or deposits on our or any of our Restricted Subsidiaries’ balance sheet), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities (other than Cash Equivalents), together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP; provided, however, that Investments shall not include the purchase of

97

subscriber accounts or amounts owed to us by security alarm dealers for subscriber accounts lost through attrition. If we or any Restricted Subsidiary of ours sells or otherwise disposes of any Equity Interests of any direct or indirect Restricted Subsidiary of ours such that, after giving effect to any such sale or disposition, such entity is no longer our Restricted Subsidiary, we shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Investment in such Restricted Subsidiary not sold or disposed of in an amount determined as provided in the third from last paragraph of the covenant described under the caption “Restricted Payments.” The acquisition by us or any Restricted Subsidiary of an entity that holds an Investment in another entity shall be deemed to be an Investment by us or such Restricted Subsidiary in such other entity in an amount equal to the fair market value of the Investment held by the acquired entity in such other entity determined as provided in the third from last paragraph of the covenant described under the caption “Limitation on Restricted Payments.”

“Leverage Ratio” means the ratio of:

(1) the aggregate outstanding amount of Indebtedness of ours and our Restricted Subsidiaries as of the date of determination on a consolidated basis (subject to the terms described in the paragraph below) plus the aggregate liquidation preference of all outstanding Disqualified Stock of ours and our Restricted Subsidiaries (except Disqualified Stock issued to us or our Wholly Owned Restricted Subsidiary) on such date, to

(2) our Consolidated Cash Flow for the latest full fiscal quarter for which financial statements are available on the date of determination annualized (i.e., multiplied by four).

For purposes of this definition, Consolidated Cash Flow shall be calculated on a pro forma basis after giving effect to (1) the incurrence of our and our Restricted Subsidiaries’ Indebtedness and the issuance of our and our Restricted Subsidiaries’ Disqualified Stock (and the application of the proceeds therefrom) giving rise to the need to make such calculation and any incurrence (and the application of the proceeds therefrom) or repayment of other Indebtedness on the date of determination, as if such incurrence or issuance (and the application of the proceeds therefrom) or the repayment, as the case may be, occurred on the first day of the last full fiscal quarter, and (2) any acquisition or disposition (including, without limitation, any acquisition giving rise to the need to make such calculation as a result of us or one of our Restricted Subsidiaries (including any entity that becomes a Restricted Subsidiary as a result of such acquisition) incurring, assuming or otherwise becoming liable for Indebtedness or issuing Disqualified Stock) at any time on or subsequent to the first day of the latest full fiscal quarter and on or prior to the date of determination, as if such acquisition or disposition (including the incurrence or assumption of any such Indebtedness and the issuance of such Disqualified Stock and also including any Consolidated Cash Flow associated with such acquisition or disposition) occurred on the first day of the latest full fiscal quarter. For purposes of this definition, pro forma calculations shall be made in good faith by a responsible financial or accounting officer of ours consistent with Article 11 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation may be amended.

“Net Income” means, with respect to any person or entity, the net income (loss) of such person or entity, determined in accordance with GAAP.

“Net Proceeds” means the aggregate cash proceeds received by us or any of our Restricted Subsidiaries in respect of any Asset Sale (including payments in respect of deferred payment obligations when received in the form of cash), net of:

(1) reasonable out-of-pocket expenses and fees relating to such Asset Sale, including, without limitation, legal, accounting and investment banking fees and sales commissions, recording fees, relocation costs, title insurance premiums, appraisers’ fees and costs reasonably incurred in preparation of any asset or property for sale;

(2) taxes paid or reasonably estimated to be payable (calculated based on the combined state, federal and foreign statutory tax rates applicable to us or the Restricted Subsidiary engaged in such Asset Sale after taking into account any tax credits or deductions and any tax sharing arrangements);

98

(3) all payments made on any Indebtedness of us or any guarantor which is secured by any assets subject to such Asset Sale;

(4) all distributions and other payments required to be made to any person or entity owning a beneficial interest in the assets subject to sale, or minority interest holders in Subsidiaries or joint ventures, as a result of such Asset Sale; and

(5) any reserves established in accordance with GAAP for adjustment in respect of the sales price of the asset or assets subject to such Asset Sale or for any liabilities associated with such Asset Sale.

“Non-Recourse Debt” means Indebtedness:

(1) as to which neither we nor any of our Restricted Subsidiaries (a) provide credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness), (b) are directly or indirectly liable (to a guarantor or otherwise) or (c) constitute the lender; and

(2) no default with respect to which (including any rights that the holders thereof may have to take enforcement action against an Unrestricted Subsidiary) would permit (upon notice, lapse of time or both) any holder of any other Indebtedness (other than the notes) of ours or any of our Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity.

“Permitted Business” means any business conducted by us and our Restricted Subsidiaries on the date of the indenture and other businesses reasonably related, ancillary or complementary thereto, as determined in good faith by our board of directors.

“Permitted Holders” means AV Partners III, L.P., AV Partners V, L.P., Capital Resource Partners II, L.P, ABRY Capital Partners, L.P., ABRY Partners IV, L.P., ABRY Investment Partnership, L.P., Windward Capital GP II, LLC, Windward Capital Partners II, L.P., and Windward Capital LP II, LC. or any of their Affiliates, partners or members or James R. Hull or any of his Affiliates or family partnerships, trusts or other entities or investment vehicles created for the benefit of any of the foregoing.

“Permitted Investment” means:

(1) any Investment in us or a guarantor (whether existing on the date the notes are originally issued under the indenture or created thereafter) or any entity that after such Investment, and as a result thereof, becomes a guarantor;

(2) any Investment in Cash Equivalents;

(3) any Investment made as a result of the receipt of non-cash consideration from a sale of assets that was made pursuant to and in compliance with the covenant described under the caption “—Restrictive Covenants—Limitation on Asset Sales”;

(4) any Investments to the extent acquired in exchange for the issuance of our Equity Interests (other than Disqualified Stock);

(5) Investments in securities of trade creditors, wholesalers, suppliers or customers received pursuant to any plan of reorganization or similar arrangement for obligations arising in the ordinary course of business;

(6) loans or advances to employees of ours or any Restricted Subsidiary of ours for purposes of purchasing from us or a Holding Company our or a Holding Company’s Capital Stock and other loans and advances to employees, dealers or independent contractors made in the ordinary course of business consistent with past practices of ours or such Restricted Subsidiary, provided that the aggregate amount of all such loans and advances at any time outstanding shall not exceed $2.0 million;

(7) receivables owing to us or any of our Restricted Subsidiaries, if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms;

99

(8) stock, obligations or securities received in settlement of debts created in the ordinary course of business and owing to us or any of our Restricted Subsidiaries or in satisfaction of judgments or claims;

(9) Hedging Obligations incurred in compliance with “Limitation on Debt and Issuance of Disqualified Stock” and not for speculative purposes; and

(10) other Investments in an amount not to exceed $10.0 million.

“Permitted Junior Securities” of an entity means (1) Equity Interests in such entity and debt securities of such entity, in each case (whether Equity Interests or debt securities) that are subordinated to all Senior Debt and any securities (whether equity or debt) issued in exchange for Senior Debt of such entity to substantially the same extent as, or to a greater extent than, the notes and the note guarantees are subordinated to Senior Debt of ours and the guarantors pursuant to the indenture or (2) Equity Interests in such entity that are of the same class and series as, and have no greater contractual rights than, any Equity Interests constituting common stock in such entity issued in exchange for Senior Debt of such entity.

“Permitted Liens” means:

(1) liens securing Senior Debt;

(2) liens securing the notes or the note guarantees;

(3) liens in favor of us or any of our Wholly Owned Restricted Subsidiaries;

(4) liens on property of an entity existing at the time such entity is merged into or consolidated with us or any of our Restricted Subsidiaries or at the time such entity becomes our Restricted Subsidiary, provided that such liens were in existence prior to the contemplation of such transaction and do not extend to any assets other than those of the entity merged into or consolidated with us or the Restricted Subsidiary;

(5) liens on property existing at the time of acquisition thereof by us or any Restricted Subsidiary of ours, provided that such liens were in existence prior to the contemplation of such acquisition;

(6) liens existing on the date of the indenture;

(7) liens securing Indebtedness represented by Capital Lease Obligations, mortgage financings or purchase money obligations, in each case incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of property or assets used in our or any Restricted Subsidiary’s business or incurred to refinance any such purchase price or cost of construction or improvement, in each case incurred no later than 365 days after the date of such acquisition or the date of completion of such construction or improvement; provided that the principal amount of any Indebtedness described in this clause (7) shall not exceed $10.0 million at any time outstanding;

(8) liens incurred in the ordinary course of our or any Restricted Subsidiary’s business with respect to obligations that do not exceed $5.0 million at any one time outstanding and that do not in the aggregate materially detract from the value of the property or materially impair the use thereof in the operation of business by us or such Restricted Subsidiary;

(9) liens for property taxes, assessments and other governmental charges or levies not yet delinquent or subject to penalties for nonpayment or which are being contested in good faith by appropriate proceedings;

(10) liens resulting from the deposit of funds or evidences of Indebtedness in trust for the purpose of defeasing our or any of our Subsidiaries’ Indebtedness;

(11) liens imposed by law, such as carriers’, warehousemen’s and mechanics’ liens and other similar liens, on the assets of ours or any Restricted Subsidiary arising in the ordinary course of business and securing payment of obligations that are not more than 60 days past due or are being contested in good faith by appropriate proceedings;

100

(12) pledges or deposits by us or any Restricted Subsidiary under workmen’s compensation laws, unemployment insurance laws or similar legislation, or good faith deposits in connection with bids, tenders, contracts (other than for the payment of Indebtedness) or leases to which we or any Restricted Subsidiary are a party, or deposits to secure public or statutory obligations of ours, or deposits for the payment of rent, in each case incurred in the ordinary course of business; and

(13) liens on the assets of ours or any Restricted Subsidiary to secure any Permitted Refinancing Indebtedness, in whole or in part, of any Indebtedness secured by liens; provided, however, that any such lien shall be limited to the same assets that secured the original Indebtedness.

“Permitted Refinancing Disqualified Stock” means any Disqualified Stock of ours or any of our Restricted Subsidiaries issued in exchange for or the net proceeds of which are used to repurchase or redeem other Disqualified Stock of ours or such Restricted Subsidiary (other than intercompany Disqualified Stock); provided that:

(1) the liquidation preference of such Permitted Refinancing Disqualified Stock does not exceed the liquidation value, plus premiums, penalties and accrued dividends on, the Disqualified Stock so exchanged, repurchased or redeemed (plus the amount of reasonable expenses incurred in connection therewith);

(2) such Permitted Refinancing Disqualified Stock has a redemption date no earlier than the redemption date of the Disqualified Stock being exchanged, repurchased or redeemed; and

(3) such Permitted Refinancing Disqualified Stock is issued either by us or by the Restricted Subsidiary that issued the Disqualified Stock being exchanged, repurchased or redeemed.

“Permitted Refinancing Indebtedness” means any of our or our Restricted Subsidiaries’ Indebtedness issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness of ours or such Restricted Subsidiary (other than intercompany Indebtedness); provided that:

(1) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount of (or accreted value, if applicable), plus premiums, penalties and accrued interest on, the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus the amount of reasonable expenses incurred in connection therewith);

(2) such Permitted Refinancing Indebtedness has a final maturity date no earlier than the final maturity date, and a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity, of the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded;

(3) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is (i) pari passu in right of payment to the notes or any note guarantee, such Permitted Refinancing Indebtedness is pari passu with or subordinated in right of payment to the notes or any note guarantee and (ii) subordinated in right of payment to the notes or any note guarantee, such Permitted Refinancing Indebtedness is subordinated in right of payment to the notes or any note guarantee, in each case on terms at least as favorable to the holders of notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; provided that the 14.5% subordinated notes due March 1, 2010 outstanding on the date on which the notes are originally issued under the indenture (together with any additional principal amount paid in lieu of cash interest pursuant to the terms of the 14.5% subordinated notes due March 1, 2010 on the date) may be refinanced or replaced with Indebtedness that is pari passu with the notes; and

(4) such Indebtedness is incurred either by us or by the Restricted Subsidiary that is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded.

“Qualified Consideration” means, with respect to any Asset Sale (or any other transaction or series of related transactions required to comply with clause (3) of the first paragraph of the covenant described under the caption “Restrictive Covenants—Limitation on Asset Sales”), any one or more of (1) Cash Equivalents,

101

(2) securities, notes or other obligations received by us or such Restricted Subsidiary from the transferee that are contemporaneously (subject to ordinary settlement periods) converted into cash, (3) Indebtedness (excluding contingent liabilities and Indebtedness that is pari passu or subordinated to the notes or any note guarantees, and Indebtedness that is owed to us or any of our Affiliates) of us or any Restricted Subsidiary that is expressly assumed by the transferee in an Asset Sale and with respect to which we or the Restricted Subsidiary, as the case may be, are unconditionally released by the holder of that Indebtedness, and (4) any assets received by us or our Restricted Subsidiaries that would satisfy clause (2) of the second paragraph of the “Limitation on Asset Sales” covenant (provided that if such assets involve consideration in excess of $5.0 million, the valuation of such assets has been approved by a majority of the members of our board of directors and, provided, further that if such assets involve consideration in excess of $15 million, the board of directors’ determination must be based upon an opinion or appraisal issued by an accounting, appraisal or investment banking firm of national standing).

“Restricted Investment” means an Investment other than a Permitted Investment.

“Restricted Payment” means:

(1) the declaration or payment of any dividend or other payment or distribution on account of our or any of our Restricted Subsidiaries’ Equity Interests (including, without limitation, any payment in connection with any merger or consolidation involving us or any of our Restricted Subsidiaries) or to the direct or indirect holders of our or any of our Restricted Subsidiaries’ Equity Interests in their capacity as such, other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of ours or to us or our Restricted Subsidiary;

(2) the purchase, repurchase, redemption, acquisition or retirement for value (including, without limitation, in connection with any merger or consolidation involving us) of any Equity Interests of ours or any guarantor (other than any such Equity Interests owned by us or our Restricted Subsidiary);

(3) the making of any payment on or with respect to, or the purchase, redemption, defeasance or other acquisition or retirement for value of, any Indebtedness that is subordinated to the notes, except (a) a payment of interest or a payment of principal at Stated Maturity or (b) the purchase, redemption, defeasance or other acquisition or retirement of such subordinated Indebtedness made in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of such purchase, redemption, defeasance or other acquisition or retirement; or

(4) any Restricted Investment.

“Restricted Subsidiary” means any Subsidiary of ours other than an Unrestricted Subsidiary.

“Senior Debt” means:

(1) all Indebtedness of ours or any guarantor under the Credit Agreement;

(2) any other Indebtedness of ours or any guarantor permitted to be incurred under the terms of the indenture, unless the instrument under which such Indebtedness is incurred expressly provides that it is on a parity with or subordinated in right of payment to the notes or any note guarantee; and

(3) all obligations with respect to the items listed in the preceding clauses (1) and (2) (including any interest accruing after the commencement of any bankruptcy proceeding at the rate specified in the applicable Senior Debt, whether or not allowed as a claim in such proceeding).

Notwithstanding anything to the contrary in the preceding, Senior Debt will not include:

(1) any liability for federal, state, local or other taxes owed or owing by such person or entity;

(2) any Indebtedness of ours or any guarantor to us or any of our Subsidiaries or Affiliates;

(3) any Indebtedness of ours or any guarantor under the 14.5% subordinated notes due March 1, 2010, including any such subordinated notes paid in lieu of cash interest thereon;

102

(4) any trade payables;

(5) any amounts or liabilities owing to dealers from whom we purchase subscriber accounts; or

(6) any Indebtedness that is incurred in violation of the indenture.

“Significant Subsidiary” means any Subsidiary that would be our “Significant Subsidiary” within the meaning of Rule 1-02 under Regulation S-X promulgated by the Securities and Exchange Commission.

“Stated Maturity” means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which such payment of interest or principal was scheduled to be paid in the original documentation governing such Indebtedness, and shall not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof.

“Subsidiary” means, with respect to any entity:

(1) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned, directly or indirectly, by such entity; and

(2) any other entity (other than a corporation), including, without limitation, a partnership, joint venture or limited liability company, in which the specified entity, one or more Subsidiaries thereof or the specified entity and one or more Subsidiaries thereof, directly or indirectly, at the date of determination thereof, has or have at least a majority of the Voting Stock or other ownership interests of such entity.

“Unrestricted Subsidiary” means any Subsidiary that is designated by our board of directors as an Unrestricted Subsidiary pursuant to a resolution of the board of directors, but only to the extent that such Subsidiary:

(1) has no Indebtedness other than Non-Recourse Debt; and

(2) is an entity with respect to which neither we nor any of our Restricted Subsidiaries have any direct or indirect obligation (1) to subscribe for additional Equity Interests or (2) to maintain or preserve such entity’s financial condition or to cause such entity to achieve any specified levels of operating results.

“U.S. Government Obligations” means direct obligations (or certificates representing an ownership interest in such obligations) of the United States of America (including any agency or instrumentality thereof) for the payment of which the full faith and credit of the United States of America is pledged and which are not callable or redeemable at the issuer’s option.

“Voting Stock” with respect to any specified entity (1) means any class or classes of Equity Interests of the specified entity pursuant to which the holders thereof have the general voting power under ordinary circumstances to elect at least a majority of the board of directors, partners, managers or trustees of the specified entity (irrespective of whether or not, at the time, stock of any other class or classes have, or might have, voting power by reason of the happening of any contingency) that control the management and policies of such entity, and (2) if such specified entity is a limited partnership, includes the general partner and limited partner interests of such entity.

“Weighted Average Life to Maturity” means, when applied to any Indebtedness at any date, the number of years obtained by dividing:

(1) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by

103

(2) the then outstanding principal amount of such Indebtedness.

“Wholly Owned Restricted Subsidiary” of any entity means a Restricted Subsidiary of such entity all the outstanding Capital Stock or other ownership interests of which (except directors’ qualifying shares) is at such time owned by such entity and its other Wholly Owned Restricted Subsidiaries.

Book-Entry System

The notes will be initially issued in the form of one or more global securities registered in the name of The Depository Trust Company (“DTC”) or its nominee.

Upon the issuance of a global security, DTC or its nominee will credit the accounts of persons or entities holding through it with the respective principal amounts of the notes represented by such global security purchased by such persons or entities in this offering. Ownership of beneficial interests in a global security will be limited to persons or entities that have accounts with DTC (“participants”) or persons or entities that may hold interests through participants. Any person or entity acquiring an interest in a global security through an offshore transaction in reliance on Regulation S of the Securities Act may hold such interest through Clearstream Banking, S.A. or Euroclear Bank N.V./S.A., as operator of the Euroclear System. Ownership of beneficial interests in a global security will be shown on, and the transfer of that ownership interest will be effected only through, records maintained by DTC (with respect to participants’ interests) and such participants (with respect to the owners of beneficial interests in such global security other than participants). The laws of some jurisdictions require that certain purchasers of securities take physical delivery of such securities in definitive form. Such limits and such laws may impair the ability to transfer beneficial interests in a global security.

Payment of principal of and interest on notes represented by a global security will be made in immediately available funds to DTC or its nominee, as the case may be, as the sole registered owner and the sole holder of the notes represented thereby for all purposes under the indenture. We have been advised by DTC that upon receipt of any payment of principal of or interest on any global security, DTC will immediately credit, on its book-entry registration and transfer system, the accounts of participants with payments in amounts proportionate to their respective beneficial interests in the principal or face amount of such global security as shown on the records of DTC. Payments by participants to owners of beneficial interests in a global security held through such participants will be governed by standing instructions and customary practices as is now the case with securities held for customer accounts registered in “street name” and will be the sole responsibility of such participants.

A global security may not be transferred except as a whole by DTC or a nominee of DTC to a nominee of DTC or to DTC. A global security is exchangeable for certificated notes only if:

(1) DTC notifies us that it is unwilling or unable to continue as a depositary for such global security or if at any time DTC ceases to be a clearing agency registered under the Exchange Act;

(2) a DTC participant at any time determines not to have all the notes represented by such global security; or

(3) an Event of Default entitling the noteholders to accelerate shall have occurred and be continuing with respect to the notes represented by such global security.

Any global security that is exchangeable for certificated notes pursuant to the preceding sentence will be exchanged for certificated notes in authorized denominations and registered in such names as DTC or any successor depositary holding such global security may direct. Subject to the foregoing, a global security is not exchangeable, except for a global security of like denomination to be registered in the name of DTC or any successor depositary or its nominee. In the event that a global security becomes exchangeable for certificated notes,

(1) certificated notes will be issued only in fully registered form in denominations of $1,000 or integral multiples thereof;

104

(2) payment of principal of, and premium, if any, and interest on, the certificated notes will be payable, and the transfer of the certificated notes will be registerable, at the office or agency we maintain for such purposes; and

(3) no service charge will be made for any registration of transfer or exchange of the certificated notes, although we may require payment of a sum sufficient to cover any tax or governmental charge imposed in connection therewith.

So long as DTC or any successor depositary for a global security, or any nominee, is the registered owner of such global security, DTC or such successor depositary or nominee, as the case may be, will be considered the sole owner or holder of the notes represented by such global security for all purposes under the indenture and the notes. Except as set forth above, owners of beneficial interests in a global security will not be entitled to have the notes represented by such global security registered in their names, will not receive or be entitled to receive physical delivery of certificated notes in definitive form and will not be considered to be the owners or holders of any notes under such global security. Accordingly, each person or entity owning a beneficial interest in a global security must rely on the procedures of DTC or any successor depositary, and, if such person or entity is not a participant, on the procedures of the participant through which such person or entity owns its interest, to exercise any rights of a holder under the indenture. We understand that under existing industry practices, in the event that we request any action of holders or that an owner of a beneficial interest in a global security desires to give or take any action which a holder is entitled to give or take under the indenture, DTC or any successor depositary would authorize the participants holding the relevant beneficial interest to give or take such action and such participants would authorize beneficial owners owning through such participants to give or take such action or would otherwise act upon the instructions of beneficial owners owning through them.

DTC has advised us that DTC is a limited-purpose trust company organized under the Banking Law of the State of New York, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code and a “clearing agency” registered under the Exchange Act. DTC was created to hold the securities of its participants and to facilitate the clearance and settlement of securities transactions among its participants in such securities through electronic book-entry changes in accounts of the participants, thereby eliminating the need for physical movement of securities certificates. DTC’s participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations some of whom (or their representatives) own DTC. Access to DTC’s book-entry system is also available to others, such as banks, brokers, dealers and trust companies, that clear through or maintain a custodial relationship with a participant, either directly or indirectly.

Although DTC has agreed to the foregoing procedures in order to facilitate transfers of interests in global securities among participants of DTC, it is under no obligation to perform or continue to perform such procedures, and such procedures may be discontinued at any time. Neither we nor the trustee will have any responsibility for the performance by DTC or its participants or indirect participants of their respective obligations under the rules and procedures governing their operations.

DESCRIPTION OF CAPITAL STOCK

We have 88,949,075 shares of capital stock authorized, consisting of:

• 80,000,000 shares of Class A common stock, par value $0.01 per share;

• 700,000 shares of Class B common stock, par value $0.01 per share; and

• 8,247,075 shares of Series A preferred stock, par value $0.01 per share.

105

Common Stock

The Class A common stock and the Class B common stock are identical except for voting and conversion rights and entitle the holders thereof to the same rights and privileges. Class B common stock is nonvoting, and Class A common stock has full voting rights. Each holder of shares of Class A common stock is entitled to one vote per share in the election of directors and on each other matter submitted to a vote of our shareholders. The Series A preferred stock votes together with Class A common stock as a single class on an as-converted basis on all maters to come before our shareholders and Class A common stock is not entitled to vote separately as a class on any matter, unless expressly mandated by law. Class B common stock is convertible on a share-for-share basis into Class A common stock, provided the conversion does not result in the holder of Class B common stock acquiring voting securities in excess of the amounts allowed for the holder under applicable laws or regulations.

Series A Preferred Stock

Dividends. After the date that the holders of a majority of the outstanding shares of Series A preferred stock elect for such shares to begin accruing dividends (a “Dividend Election”), dividends will accrue on the Series A preferred stock at an annual rate of 8% until the first anniversary of the Dividend Election, and thereafter will increase by an additional 2% per annum on each subsequent anniversary of the Dividend Election date up to a maximum annual rate of 16%. The holders of the Series A preferred stock may make a Dividend Election only during the 30-day periods subsequent to the determination of annualized EBITDA for the quarterly periods ending June 30, 2005, December 31, 2006 and June 30, 2008 or in the event of certain covenant defaults, including a leverage default (as described below).

The dividend rate will also increase by an additional 3% per annum above the then-applicable rate and by an additional 1% per annum at the end of each 90-day period thereafter (up to a maximum annual rate of 24%) following certain covenant defaults or if we issue senior securities or incur certain indebtedness that causes that the ratio of the sum of the aggregate liquidation preferences of company securities which are senior to, or pari passu with, the Series A preferred stock plus certain company debt to exceed a specified multiple (a “leverage default”) until such noncompliance is cured. The initial multiple is 4.8, subject to adjustment upon the occurrence of additional leverage or covenant defaults. If our leverage ratio exceeds a specified amount other than as a result of our issuance of additional senior securities or indebtedness that triggers the increased dividends described in the preceding sentence, the dividend rate will increase by an additional 2% per annum (up to a maximum annual rate of 24%). If a Dividend Election has been made and we fail to redeem the Series A preferred stock on the later of June 30, 2008 and the delivery of a Dividend Election for the quarterly period ending June 30, 2008, the maximum dividend rate shall be increased from 16% to the greater of 24% and the maximum rate permitted by law.

Dividends are payable in cash when and as declared by our board of directors so long as sufficient cash is available to make the dividend payment. We may not pay dividends if a default exists or the payment of dividends would create a default under our credit facility or the indenture relating to the notes.

Voting Rights. Prior to a Dividend Election, the Series A preferred stock votes with the Class A common stock as a single class on an as-converted basis on all matters submitted to vote of the holders of the Class A common stock. After the delivery of a Dividend Election, except as provided below or otherwise required by law, holders of Series A preferred stock will have no voting rights. On matters specifically requiring the vote of the Series A preferred stock voting as a separate class, holders of Series A preferred stock will be entitled to one vote per share of Series A preferred stock held by the holders. At any time after delivery of a Dividend Election, the holders of a majority of the outstanding shares of Series A preferred stock, voting as a separate class, must approve:

• any change in the nature of our business;

• the issuance of securities that rank senior to, or pari passu with, the Series A preferred stock, or the incurrence of certain indebtedness, subject to limited exceptions;

106

• the issuance of additional Series A preferred stock other than to holders who received Series A preferred stock in the recapitalization or their permitted transferees;

• a redemption or repurchase of company securities that rank junior to, or pari passu or senior to, the Series A preferred stock, subject to limited exceptions;

• the declaration or payment of dividends or distributions on any company security that ranks junior to, or pari passu or senior to, the Series A preferred stock, subject to limited exceptions;

• our entry into agreements that prohibit us from performing our obligations in respect of the Series A preferred stock or which prohibit the exercise of the right of the holders of Series A preferred stock to require a sale of the company or other voting rights;

• acquisitions in excess of $100 million;

• amendment of our articles of incorporation or bylaws to increase the authorized shares of Series A preferred stock or adversely affect or otherwise impair the rights or relative preferences or priorities of the Series A preferred stock, other than to establish or amend senior securities otherwise permitted to be issued;

• our entry into or amendment of agreements with affiliates, subject to limited exceptions; or

• our establishment, acquisition of or ownership of any equity securities of ABRY or its affiliates.

Liquidation Preference. The Series A preferred stock will have a liquidation preference per share equal to (a) the sum of (i) an initial multiple equal to 5.5 multiplied by annualized EBITDA for the most recently completed fiscal quarter plus (ii) company cash in excess of $2.0 million less (b) company debt (as defined in the articles of incorporation) (the “Liquidation Value”), plus accrued and unpaid dividends. The multiple used to calculate the Liquidation Value will be adjusted upon the occurrence of certain covenant defaults or leverage defaults.

Redemption. After a Dividend Election, we must redeem the Series A preferred stock upon the closing of a qualified public offering at a per share price equal to the Liquidation Value plus accrued and unpaid dividends (the “Redemption Price”). After a Dividend Election, we must also redeem the Series A preferred stock at the Redemption Price per share on the later of June 30, 2008 or 30 days after such date if the Dividend Election is made for the quarterly period ending June 30, 2008 (the “Mandatory Redemption Date”). If a Dividend Election has been made and we have not redeemed the Series A preferred stock on the Mandatory Redemption Date, the holders of a majority of the outstanding Series A preferred stock may elect to initiate the sale or liquidation of the company. We may redeem the Series A preferred stock at our option at any time after a Dividend Election.

Notwithstanding the foregoing mandatory and optional redemption provisions, we cannot redeem the Series A preferred stock while the notes are outstanding or if prohibited under our credit facility.

Conversion. Prior to a Dividend Election, each share of our Series A preferred stock may be converted at any time at the option of the holder into one share of Class A common stock. The Series A preferred stock is not convertible after a Dividend Election. In addition, the Series A preferred stock will be automatically converted into Class A common stock upon the occurrence of an initial public offering, a liquidation or sale of the company, the expiration of the last date on which to make a Dividend Election or upon the consent of the holders of a majority of the shares of Series A preferred stock if no Dividend Election has been made prior to the occurrence of any such event.

107

MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

The following discussion summarizes material U.S. federal income tax considerations that may be relevant to the exchange of the old notes for the new notes, but does not purport to be a complete analysis of all potential tax effects. This discussion is based upon the provisions of the Internal Revenue Code of 1986, as amended, applicable Treasury Regulations promulgated thereunder, judicial authority and administrative interpretations, as of the date hereof, all of which are subject to change, possibly with retroactive effect, or are subject to different interpretations. This discussion does not address the tax considerations arising under the laws of any foreign, state, local, or other jurisdiction.

We believe that the exchange of the old notes for the new notes should not be an exchange or otherwise a taxable event to a holder for the U.S. federal income tax purposes. Accordingly, a holder should have the same adjusted issue price, adjusted basis and holding period in the new notes as it had in the old notes immediately before the exchange.

PLAN OF DISTRIBUTION

Based on interpretations by the staff of the Securities and Exchange Commission in no action letters issued to third parties, we believe that you may transfer new notes issued under the exchange offer in exchange for the old notes if:

• you acquire the new notes in the ordinary course of your business; and

• you are not engaged in, and do not intend to engage in, and have no arrangement or understanding with any person to participate in, a distribution of such new notes.

You may not participate in the exchange offer if you are:

• our “affiliate” within the meaning of Rule 405 under the Securities Act; or

• a broker-dealer that acquired old notes directly from us.

Each broker-dealer that receives new notes for its own account pursuant to the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of such new notes. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of new notes received in exchange for old notes where such old notes were acquired as a result of market-making activities or other trading activities. We have agreed that for a period of 180 days after the expiration date of the exchange offer, we will make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. In addition, until                                 , 2004 all dealers effecting transactions in the new notes may be required to deliver a prospectus.

If you wish to exchange new notes for your old notes in the exchange offer, you will be required to make representations to us as described in “Exchange Offer—Purpose and Effect of the Exchange Offer” and “—Procedures for Tendering—Your Representations to Us” in this prospectus. As indicated in the letter of transmittal, you will be deemed to have made these representations by tendering your old notes in the exchange offer. In addition, if you are a broker-dealer who receives new notes for your own account in exchange for old notes that were acquired by you as a result of market-making activities or other trading activities, you will be required to acknowledge, in the same manner, that you will deliver a prospectus in connection with any resale by you of such new notes.

We will not receive any proceeds from any sale of new notes by broker-dealers. New notes received by broker-dealers for their own account pursuant to the exchange offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the new

108

notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to, or through, brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer or the purchasers of any such new notes. Any broker-dealer that resells new notes that were received by it for its own account pursuant to the exchange offer and any broker or dealer that participates in a distribution of such new notes may be deemed to be an “underwriter” within the meaning of the Securities Act and any profit on any such resale of new notes and any commission or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The letter of transmittal states that by acknowledging that it will deliver and by delivering a prospectus, the broker-dealer will not be deemed to admit that it is an “underwriter” within the meaning of the Securities Act.

For a period of 180 days after the expiration date of the exchange offer, we will promptly send additional copies of this prospectus and any amendment or supplement to this prospectus to any broker-dealer that requests such documents in the letter of transmittal. We have agreed to pay all expenses incident to the exchange offer (including the expenses of one counsel for the holders of the old notes) other than commissions or concessions of any brokers or dealers and will indemnify the holders of the old notes (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act.

LEGAL MATTERS

The validity of the new notes offered in this exchange offer will be passed upon for us by Vinson & Elkins L.L.P., Dallas, Texas.

EXPERTS

Our financial statements and schedule as of June 30, 2003 and 2002 and for each of the years in the three year period ended June 30, 2003 included in this prospectus and registration statement have been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their reports appearing herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.

WHERE YOU CAN FIND OTHER INFORMATION

We will file annual, quarterly and current reports and other information with the Securities and Exchange Commission. Our filings with the Securities and Exchange Commission are also available to the public from the Securities and Exchange Commission’s website at http://www.sec.gov. These reports do not constitute a part of this prospectus, and we are not incorporating by reference any of the reports we file with the Securities and Exchange Commission. The public may read and copy any reports or other information that we file with the Securities and Exchange Commission’s public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the public reference room by calling the Securities and Exchange Commission at 1-800-SEC-0330.

In addition, pursuant to the indenture governing the notes, we have agreed to the extent permitted by the Securities and Exchange Commission to file with the Securities and Exchange Commission and in all events to distribute to the trustee (under the indenture) our annual reports containing audited annual consolidated financial statements and our quarterly reports containing our unaudited consolidated financial statements for each of the three first quarters of each fiscal year. We will do this without regard to whether we are subject to the informational requirements of the Securities Exchange Act of 1934.

We maintain an internet web site at www.monitronics.com and www.monitronics.net. The information on these sites does not form a part of this prospectus.

109

While any notes remain outstanding, we will make available, upon request, to any beneficial owner and any prospective purchaser of notes the information required pursuant to Rule 144A(d)(4) under the Securities Act during any period in which we are not subject to Section 13 or 15(d) of the Securities Exchange Act of 1934. Any such request should be directed to our Chief Financial Officer at 12801 Stemmons Freeway, Suite 821, Dallas, Texas 75234, telephone (972) 243-7443.

110

FINANCIAL STATEMENTS

Contents

Audited Financial Statements:
Report of Independent Auditors	F-2
Balance Sheets as of June 30, 2003 and 2002	F-3
Statements of Income for the years ended June 30, 2003, 2002 and 2001	F-4
Statements of Shareholders’ Net Capital Deficiency for the years ended June 30, 2003, 2002 and 2001	F-5
Statements of Cash Flows for the years ended June 30, 2003, 2002 and 2001	F-6
Notes to Financial Statements	F-7
Unaudited Financial Statements:
Balance Sheets as of March 31, 2004 and June 30, 2003	F-22
Statements of Operations for the Six Months Ended March 31, 2004 and 2003	F-23
Statements of Cash Flows for the Six Months Ended March 31, 2004 and 2003	F-24
Notes to Financial Statements	F-25

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors of

Monitronics International, Inc.

We have audited the balance sheets of Monitronics International, Inc., as of June 30, 2003 and 2002, and the related statements of income, shareholders’ net capital deficiency, and cash flows for each of the years in the three year period ended June 30, 2003. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Monitronics International, Inc., as of June 30, 2003 and 2002, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2003 in conformity with accounting principles generally accepted in the United States.

As discussed in Note 1 to the financial statements, the Company changed its method of amortizing subscriber accounts.

As discussed in Note 1 to the financial statements, the Company changed its method of accounting for goodwill in accordance with Statement of Financial Accounting Standards No. 142 as of July 1, 2001.

ERNST & YOUNG LLP

Fort Worth, Texas

August 25, 2003,

except for restatement as discussed in Note 1,

as to which the date is May 14, 2004

F-2

MONITRONICS INTERNATIONAL, INC.

BALANCE SHEETS

	Year ended June 30,
	2003 (Restated)			2002 (Restated)
	(In thousands except share data)
Assets
Current assets:
Cash and cash equivalents	$	334		$	17
Accounts receivable, less allowance for doubtful accounts of $1,398 in 2003 and $1,148 in 2002		4,993			4,407
Federal income tax receivable		—			282
Deferred income taxes		2,452			2,191
Prepaid expenses and other current assets		909			956
Total current assets		8,688			7,853
Property and equipment, net		4,682			5,570
Deferred income taxes		29,573			22,949
Subscriber accounts, net of accumulated amortization of $218,828 in 2003 and $161,666 in 2002		393,164			340,627
Deferred financing costs, net		6,411			7,856
Goodwill		14,795			14,795
Total assets	$	457,313		$	399,650
Liabilities and Shareholders’ Net Capital Deficiency
Current liabilities:
Accounts payable	$	1,891		$	2,222
Accrued expenses		2,017			1,438
Purchase holdbacks		8,975			5,799
Deferred revenue		3,246			2,847
Interest payable		810			1,127
Income taxes payable		2,296			1,087
Current portion of long-term debt		1,313			—
Total current liabilities		20,548			14,520
Long-term debt, less current portion		336,660			288,785
Redeemable preferred stock, net		154,935			136,264
Commitments and contingencies
Stockholders’ net capital deficiency:
Class A common stock, $.01 par value: Authorized shares — 50,000,000 Issued and outstanding shares — 2,290,784		23			23
Class B common stock, $.01 par value: Authorized shares — 700,000 Issued and outstanding shares — none		—			—
Additional paid-in capital		12			12
Treasury stock, at cost, 384,375 shares		(7,568	)		(7,568	)
Accumulated deficit		(47,297	)		(32,386	)
Total shareholders’ net capital deficiency		(54,830	)		(39,919	)
Total liabilities and shareholders’ net capital deficiency	$	457,313		$	399,650

See accompanying notes

F-3

MONITRONICS INTERNATIONAL, INC.

STATEMENTS OF INCOME

	Year ended June 30,
	2003 (Restated)			2002 (Restated)			2001 (Restated)
	(In thousands)
Revenue	$	126,406		$	111,339		$	100,198
Cost of services		14,592			13,522			11,819
Gross profit		111,814			97,817			88,379
Operating expenses:
Sales, general, and administrative		23,014			20,570			17,979
Depreciation		2,067			1,923			1,634
Amortization		57,162			49,295			43,302
		82,243			71,788			62,915
Operating income		29,571			26,029			25,464
Other expense:
Interest expense		23,268			20,941			27,951
Other expense		—			504			—
		23,268			21,445			27,951
Income before income taxes		6,303			4,584			(2,487	)
Provision for income taxes		2,543			1,795			(908	)
Net income (loss)		3,760			2,789			(1,579	)
Preferred dividends accrued		(18,457	)		(15,020	)		(4,603	)
Accretion of redeemable convertible preferred stock discount		(214	)		(193	)		(114	)
Issuance of Series C-1 preferred stock to Series C preferred shareholders		—			—			(4,950	)
Net loss attributable to common stock shareholders	$	(14,911	)	$	(12,424	)	$	(11,246	)

See accompanying notes

F-4

MONITRONICS INTERNATIONAL, INC.

STATEMENTS OF SHAREHOLDERS’ NET CAPITAL DEFICIENCY

	Class A Common Stock			Additional Paid-in Capital		Treasury Stock, at Cost				Accumulate Earnings (Deficit)			Total Shareholders’ Net Capital Deficiency
	Shares	Amount				Shares	Amount
	(In thousands except for shares)
Balance at June 30, 2000	1,722,157	$	17	$	12	384,375	$	(7,568	)	$	(8,716	)	$	(16,255	)
Accretion of redeemable convertible preferred stock to the redemption value	—		—		—	—		—			(114	)		(114	)
Exercise of employee stock options	44,970		1		—	—		—			—			1
Accrual of preferred stock dividends	—		—		—	—		—			(4,603	)		(4,603	)
Issuance of Series C-1 preferred stock to Series C preferred shareholders	—		—		—	—		—			(4,950	)		(4,950	)
Net loss - restated	—		—		—	—		—			(1,579	)		(1,579	)
Balance at June 30, 2001	1,767,127	$	18	$	12	384,375	$	(7,568	)	$	(19,962	)	$	(27,500	)
Accretion of redeemable convertible preferred stock to the redemption value	—		—		—	—		—			(193	)		(193	)
Exercise of employee stock options	5,000		—		—	—		—			—			—
Accrual of preferred stock dividends	—		—		—	—		—			(15,020	)		(15,020	)
Issuance of Class A common restricted stock to employees	518,657		5		—	—		—			—			5
Net income - restated	—		—		—	—		—			2,789			2,789
Balance at June 30, 2002	2,290,784	$	23	$	12	384,375	$	(7,568	)	$	(32,386	)	$	(39,919	)
Accretion of redeemable convertible preferred stock to the redemption value	—		—		—	—		—			(214	)		(214	)
Accrual of preferred stock dividends	—		—		—	—		—			(18,457	)		(18,457	)
Net income - restated	—		—		—	—		—			3,760			3,760
Balance at June 30, 2003	2,290,784	$	23	$	12	384,375	$	(7,568	)	$	(47,297	)	$	(54,830	)

See accompanying notes

F-5

MONITRONICS INTERNATIONAL, INC.

STATEMENTS OF CASH FLOWS

	Year ended June 30,
	2003 (Restated)			2002 (Restated)			2001 (Restated)
	(In thousands)
Operating Activities
Net income	$	3,760		$	2,789		$	(1,579	)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		59,229			51,218			44,937
Amortization of deferred financing costs		1,777			1,205			523
Deferred income taxes		(6,885	)		(7,470	)		(6,229	)
Other		—			5			—
Changes in current assets and liabilities:
Accounts receivable		(586	)		(589	)		501
Prepaid expenses and other current assets		26			(271	)		(64	)
Accounts payable		(331	)		(186	)		705
Accrued expenses		1,150			(15	)		(892	)
Deferred revenue		399			666			296
Income taxes payable and receivable		1,490			911			(1,095	)
Net cash provided by operating activities		60,029			48,263			37,103
Investing Activities
Purchases of property and equipment		(1,179	)		(2,378	)		(2,824	)
Purchases of subscriber accounts (net of holdbacks)		(106,521	)		(79,276	)		(92,859	)
Net cash used in investing activities		(107,700	)		(81,654	)		(95,683	)
Financing Activities
Proceeds from issuance of preferred stock		—			19,853			49,476
Proceeds from the exercise of stock options		—			—			1
Proceeds from revolving line-of-credit		74,400			42,200			59,900
Payments of revolving line-of-credit		(26,100	)		(63,046	)		(50,000	)
Proceeds from issuance of subordinated notes		—			40,000			—
Payment of deferred financing costs		(312	)		(5,603	)		(846	)
Net cash provided by financing activities		47,988			33,404			58,531
Increase (decrease) in cash and cash equivalents		317			13			(49	)
Cash and cash equivalents at beginning of year		17			4			53
Cash and cash equivalents at end of year	$	334		$	17		$	4
Cash paid during the period for:
Income taxes	$	7,205		$	7,430		$	6,387
Interest	$	20,078		$	19,936		$	27,631
Noncash investing and financing activities:
Accrued preferred stock dividends	$	18,457		$	15,020		$	4,603
Issuance of Series C-1 preferred stock to Series C shareholders	$	—		$	—		$	4,950

See accompanying notes

F-6

MONITRONICS INTERNATIONAL, INC.

NOTES TO FINANCIAL STATEMENTS

1. Description of Business and Summary of Significant Accounting Policies

Description of Business

Monitronics International, Inc. (the Company) provides security alarm monitoring and related services to residential and business subscribers throughout the United States. The Company monitors signals arising from burglaries, fires, and other events through security systems installed by its dealers at subscribers’ premises.

Restatement of Prior Year Financial Statements

In the third quarter of fiscal year 2004, the Company changed its method of amortizing subscriber accounts from a 10-year straight-line method to a 10-year 135% declining balance method. The Company believes the 10-year 135% declining balance method provides a better matching to individual subscriber revenues. In conjunction with this change in amortization method, the Company has restated prior period financial statements.

The Company has previously restated its financial statements to properly record deferred revenue related to billings to our subscribers. The restatement adjusted a small timing difference in revenue recognition that resulted when a subscriber’s monthly service period extended beyond a month end. Historically, we recognized the full monthly invoice as revenue in the current month instead as revenue for the portion of the bill attributable to service provided in the current month and deferred revenue for the portion of the bill attributable to service to be provided in the next month.

The effect of the restatements on previously reported revenue, amortization and net income for the fiscal years ended June 30, 2001, 2002 and 2003 is as follows:

Selected Statement of Operations Changes

	2003								2002
	Previously Reported		Adjustment			Adjusted Balance			Previously Reported		Adjustment			Adjusted Balance
	(dollars in thousands)								(dollars in thousands)
Revenue	$	126,406	$	—		$	126,406		$	111,881	$	(542	)	$	111,339
Amortization	$	54,885	$	2,277		$	57,162		$	45,968	$	3,327		$	49,295
Net Income	$	5,197	$	(1,437	)	$	3,760		$	5,223	$	(2,434	)	$	2,789
	2001
	Previously Reported		Adjustment			Adjusted Balance
	(dollars in thousands)
Revenue	$	100,799	$	(601	)	$	100,198
Amortization	$	38,423	$	4,879		$	43,302
Net Income	$	1,872	$	(3,451	)	$	(1,579	)

The effect of the restatements on previously reported balances for subscriber accounts and total shareholders’ net capital deficiency as of June 30, 2003 and 2002 is as follows:

Selected Balance Sheet Changes

	As of June 30, 2003									As of June 30, 2002
	Previously Reported			Adjustment			Adjusted Balance			Previously Reported			Adjustment			Adjusted Balance
	(in thousands)									(in thousands)
Subscriber accounts (net)	$	416,435		$	(23,271	)	$	393,164		$	361,620		$	(20,993	)	$	340,627
Total shareholders’ net capital deficiency	$	(40,152	)	$	(14,678	)	$	(54,830	)	$	(26,678	)	$	(13,241	)	$	(39,919	)

F-7

MONITRONICS INTERNATIONAL, INC.

NOTES TO FINANCIAL STATEMENTS—(continued)

Summary of Significant Accounting Policies

Cash and Cash Equivalents

The Company classifies all highly liquid investments with original maturities of three months or less as cash equivalents.

Accounting Estimates

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Accounts Receivable

Accounts receivable consist primarily of amounts due from customers for recurring monthly monitoring services over a wide geographical base. The Company performs extensive credit evaluations on the portfolios of subscriber accounts prior to purchase and requires no collateral on the accounts that are acquired. The Company has established an allowance for doubtful accounts for estimated losses resulting from the inability of subscribers to make required payments. Factors such as historical-loss experience, recoveries and economic conditions are considered in determining the sufficiency of the allowance to cover potential losses. The actual collection of receivables could be different from recorded amounts.

The Company’s allowance for doubtful accounts as of June 30, 2003 and 2002 was $1,398,000 and $1,148,000, respectively. During the years ended June 30, 2003, 2002 and 2001, the Company recorded a provision for uncollectible accounts of $4,090,000, $2,515,000 and $2,205,000 respectively, and wrote off (net of recoveries) $3,840,000, $2,098,000 and $2,415,000, respectively.

Property and Equipment

Property and equipment are stated at cost. Depreciation is computed on a straight-line basis over five years, which is the estimated useful life of the assets.

Subscriber Accounts and Other Intangible Assets

Subscriber accounts relate to the cost of acquiring portfolios of monitoring service contracts from independent dealers. The subscriber accounts are recorded at cost. All direct external costs associated with the purchase of subscriber accounts are capitalized. Internal costs, including all personnel and related support costs, incurred solely in connection with subscriber account acquisitions and transitions are expensed as incurred.

F-8

MONITRONICS INTERNATIONAL, INC.

NOTES TO FINANCIAL STATEMENTS—(continued)

The costs of subscriber accounts are amortized using the 10-year 135% declining balance method. The amortization method was selected to provide a matching of amortization expense to individual subscriber revenues. Amortization of subscriber accounts was $57.2 million, $49.3 million and $43.3 million for the years ended June 30, 2003, 2002 and 2001, respectively. Based on subscriber accounts held at June 30, 2003, amortization of subscriber accounts in the succeeding five years ending June 30 is as follows (in thousands):

2004	$	61,719
2005		58,228
2006		55,588
2007		52,928
2008		49,434
Total	$	277,897

In accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, management reviews the subscriber accounts for impairment or a change in amortization period whenever events or changes indicate that the carrying amount of the asset may not be recoverable or the life should be shortened. For purposes of recognition and measurement of an impairment loss, the Company views subscriber accounts as a single pool because of the assets’ homogeneous characteristics, which is the lowest level for which identifiable cash flows are largely independent of the cash flows of the other assets and liabilities. No impairment charge was recorded during the three-year period ended June 30, 2003.

Deferred financing costs are capitalized when the related debt is issued or when amendments to revolving credit lines increase the borrowing capacity. Deferred financing costs are amortized over the term of the related debt. Goodwill (carrying value of $14.8 million including accumulated amortization of $1.2 million at June 30, 2003, 2002 and 2001) consists of the excess of the cost over the fair value of the net assets acquired in a business combination. For the year ended June 30, 2001, goodwill was amortized on a straight-line basis over a 20-year period.

In July 2001, the Company early adopted SFAS 141, Business Combinations, and SFAS 142, Goodwill and Other Intangible Assets, which establish new accounting standards for the treatment of goodwill in a business combination. The standards do not permit amortization of goodwill but, instead, require that goodwill be separately tested for impairment using a fair-value based approach as opposed to the undiscounted cash flow approach used under prior accounting standards. Accordingly, the Company ceased amortizing its goodwill effective July 1, 2001.

The Company’s goodwill acquired of $16.0 million relates to two asset acquisitions of competitors occurring in the years ended June 30, 1995 and June 30, 1999. During the years ended June 30, 2003 and 2002, the Company performed its annual tests of goodwill impairment using a fair-value approach and the tests did not result in an impairment charge in either period.

The following pro forma financial information reflects net income as if goodwill were not subject to amortization in the year ended June 30, 2001 (in thousands).

	Year ended June 30 2001
Reported net (loss)	$	(1,579	)
Add back goodwill amortization (net of $289 in taxes)		484
Adjusted net (loss)	$	(1,095	)

F-9

MONITRONICS INTERNATIONAL, INC.

NOTES TO FINANCIAL STATEMENTS—(continued)

Income Taxes

The Company recognizes a liability or asset for the deferred tax consequences of temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. These temporary differences will result in taxable or deductible amounts in future years when reported amounts of the assets or liabilities are recovered or settled. The deferred tax assets are periodically reviewed for recoverability.

Purchase Holdbacks

The Company typically withholds a designated percentage of the purchase price when it purchases subscriber accounts from dealers. The withheld funds are recorded as a liability until the guarantee period provided by the dealer has expired. The holdback is used as a reserve to cover any terminated subscriber accounts that are not replaced by the dealer during the guarantee period as well as lost revenue during such period. At the end of the guarantee period, which is typically one year from the date of purchase, the dealer is responsible for any deficit or is paid the balance of the holdback.

Stock Compensation

The Company accounts for stock-based employee compensation arrangements in accordance with the provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and related interpretations, and complies with the disclosure provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123). Under APB 25, compensation cost is recognized over the vesting period based on the difference, if any, on the date of grant between the fair market value of the Company’s common stock and the exercise price of the stock option granted. Generally, the Company grants options with an exercise price at least equal to or above the fair market value of the Company’s common stock on the date of the grant and, as a result, generally does not record compensation cost.

The following table illustrates the effect of net income if the Company had applied the fair value recognition provisions of SFAS 123 to stock-based employee compensation (in thousands):

	Year ended June 30,
	2003			2002			2001
Net income (loss) as reported	$	3,760		$	2,789		$	(1,579	)
Deduct: Total stock based employee compensation expense determined under fair value based method for all awards, net value of related tax effects		(32	)		(30	)		(29	)
Pro forma net income (loss)	$	3,728		$	2,759		$	(1,608	)

Revenue Recognition

Revenues are recognized as the related monitoring services are provided. Deferred revenue primarily includes advance billings and payments for monitoring services to be provided in the future.

Risk Concentration

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of trade accounts receivable. The Company performs extensive credit evaluations on the portfolios of subscriber accounts prior to purchase and requires no collateral on the subscriber accounts that are

F-10

MONITRONICS INTERNATIONAL, INC.

NOTES TO FINANCIAL STATEMENTS—(continued)

acquired. Concentrations of credit risk with respect to trade accounts receivable are generally limited due to the large number of subscribers comprising the Company’s customer base.

Fair Value of Financial Instruments

Borrowings under the Company’s revolving credit and term loan agreement approximate fair value due to the borrowings being based on variable market interest rates. Management believes that the fair value of the $12,000,000 senior subordinated notes and the $40,000,000 subordinated notes approximates their book value.

Reclassifications

Certain prior year amounts have been reclassified to conform with current year presentation.

Recent Accounting Pronouncements

In January 2003, the FASB issued FASB Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.” FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in an entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective immediately for all new variable interest entities created or acquired after December 31, 2003. FIN 46 requires application of the interpretation to all entities subject to the interpretation no later than the beginning of the first reporting period that begins after December 15, 2004. After conducting an evaluation of the effect of the adoption of FIN 46, the Company concluded that there were no variable interest entities to be consolidated. Therefore, the adoption of FIN 46 will not have a material impact on the Company’s consolidated financial position or on its results of operations.

In May 2003, the FASB issued Financial Accounting Standards No. 150 (“SFAS 150”) — “Accounting For Certain Financial Instruments with Characteristics of both Liabilities and Equity”. This statement established standards for how an issuer classifies and measures in its statement of financial position certain financial instruments with characteristics of both liabilities and equity. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first fiscal period beginning after December 15, 2003 and must be applied prospectively by reporting the cumulative effect of a change in an accounting principle for financial instruments created before the issuance date of the Statement and still existing at the beginning of the interim period of adoption. The Company has not fully evaluated the impact of SFAS 150.

2. Property and Equipment

Property and equipment consists of the following at June 30 (in thousands):

	2003			2002
Central monitoring station and computer equipment	$	9,475		$	8,545
Furniture and office equipment		1,951			1,648
Leasehold improvements		1,426			1,311
Other		281			281
		13,133			11,785
Less accumulated depreciation		(8,451	)		(6,215	)
	$	4,682		$	5,570

F-11

MONITRONICS INTERNATIONAL, INC.

NOTES TO FINANCIAL STATEMENTS—(continued)

3. Long-Term Debt

Long-term debt consists of the following at June 30 (in thousands):

	2003		2002
Revolving credit line and term loan payable	$	285,085	$	236,785
Senior subordinated notes payable		12,000		12,000
Subordinated notes payable		40,888		40,000
		337,973		288,785
Less: current portion		1,313		—
	$	336,660	$	288,785

The Company has a revolving credit and term loan agreement (the Loan Agreement) with various financial institutions that provides for a $329.5 million credit facility, consisting of a $129.5 million revolving credit line, a $180 million term loan, and a $20 million term loan. As of June 30, 2003, the Company has $85.1 million in borrowings outstanding under the revolving credit line and has borrowed the entire amount committed under the term loans. As defined in the Loan Agreement, the revolving credit line converts to a term note on January 31, 2004 (the Conversion Date), and the borrowings then outstanding are payable in 36 monthly installments with the remaining balance due at maturity (January 31, 2007).

The Company can prepay the $180 million and $20 million term loans at any time prior to the Conversion Date. After the Conversion Date, the Company can prepay any borrowings outstanding. Additionally, the Loan Agreement requires a defined mandatory repayment if the borrowings ever exceed the lending commitment, if the Company has a predefined amount of excess cash flow, or if the Company has a qualified public stock offering, as defined.

At June 30, 2003, the Company has $44.4 million in borrowing availability under the revolving credit line and is charged a commitment fee of 0.75% on the average daily unused portion. The revolving credit line and the $180 million term loan bear interest at a rate of either prime plus 1.75% or LIBOR plus 3.75%, and the $20 million term loan bears interest at a rate of either prime plus 2.5% or LIBOR plus 4.5% (at June 30, 2003, borrowings bear interest at a weighted average rate of 5.3%). Interest incurred on borrowings is payable monthly in arrears. The weighted average interest rate for borrowings during the year was 5.4% in 2003, 5.6% in 2002 and 9.4% in 2001.

The Company is subject to certain financial covenants under its Loan Agreement, its subordinated notes and its senior subordinated notes, such as capital expenditure limits, restriction of dividend payments, maximum total debt to annualized quarterly operating income, maximum total senior debt to annualized monthly net operating income, total interest coverage, minimum fixed-charge coverage, and other covenants, all as defined. Borrowings under the Loan Agreement are collateralized by all assets of the Company, and by all of the shares of the Series A, B, C, C-1, and D-1 preferred stock outstanding and a majority of the Class A common stock outstanding.

The Company has $12 million in senior subordinated notes due in full on June 30, 2007 with interest payable quarterly at a rate of 12%. On January 18, 2002, the Company issued $40 million of subordinated notes due in full on January 18, 2009. Interest accrues at 13.5% with interest payable semiannually at a rate of 12%. The remaining 1.5% interest will be added to the outstanding principal. The senior subordinated notes and the subordinated notes are subordinate to the borrowings under the Loan Agreement.

On August 25, 2003, the Company issued $160.0 million of Senior Subordinated Notes (the Senior Subordinated Notes) at 11.75% with a maturity date of September 1, 2010. Interest payments are to be made

F-12

MONITRONICS INTERNATIONAL, INC.

NOTES TO FINANCIAL STATEMENTS—(continued)

semi-annually in cash in arrears on March 1 and September 1 of each year beginning on March 1, 2004. Further, the Company entered into a new credit facility agreement comprised of a $175.0 million term loan that matures in fiscal 2010 and a $145.0 million revolving credit facility that matures in fiscal 2009. Payments under the term loan are payable in quarterly installments from December 31, 2003 through June 30, 2009. The quarterly payment is calculated based upon the amount of the original facility multiplied by 0.25% for the quarters ended December 31, 2003 through September 30, 2006, 1.25% for the quarters ended December 31, 2006 through September 30, 2007 and 3.00% for the quarters ended December 31, 2007 through June 30, 2009 with the remaining balance due at maturity. Proceeds from the borrowings were used primarily to repay the Company’s existing credit facility, senior subordinated notes payable, to repurchase $20.5 million principal amount of its subordinated notes at a repurchase price of approximately $23.2 million and to pay debt issuance costs. As a result of the repayments, the Company expensed its previously capitalized deferred financing costs totaling $6.0 million. The remaining principal amount of the subordinated notes was amended, and the maturity date was extended to March 1, 2010.

Scheduled maturities (as defined) of long-term debt at June 30, 2003, utilizing the required payment schedule of the Senior Subordinated notes, subordinated notes and the new credit facility entered into subsequent to year-end, are as follows (in thousands):

2004	$	1,313
2005		1,750
2006		1,750
2007		7,000
2008		17,937
Thereafter		308,223
	$	337,973

The Company also utilizes interest rate cap agreements, as required, to control its exposure to variable interest rates under the Loan Agreement. As of June 30, 2003, these interest rate caps provide that the interest rate on approximately $145 million of borrowings under the Loan Agreement cannot exceed an interest rate of 10%. The interest rate caps also expire at various dates over the next two years. The Company records these derivatives at fair value in the balance sheet and any changes in fair value are recorded in the statement of income. As of June 30, 2003, the fair value of the interest rate caps was nominal.

4. Redeemable Preferred Stock

As of June 30, 2003 and 2002, there were 4,000,000, 5,000,000, 1,409,375, and 251,420 shares of the Series A, B, C, C-1 preferred stock, respectively, authorized, issued and outstanding. In addition, as of June 30, 2003 and 2002, there were 70,000 shares of Series D-1 and D-2 preferred stock authorized, and no Series D-2 issued and outstanding, and as of June 30, 2003 and 2002 there were 70,000 shares, of Series D-1 preferred stock issued and outstanding. All shares have a par value of $0.01. In conjunction with the issuance of each Series of preferred stock, the Company incurred financing costs which have been reflected as the unaccreted redemption value of preferred stock. The accretion of these costs is being charged directly to accumulated deficit through the mandatory redemption date.

On April 27, 2001, the Company issued 251,420 shares of Series C-1 preferred stock to the Series C preferred stock shareholders which was recorded at the liquidation and redemption value of $4.95 million. This was a noncash transaction and has been reflected as a dividend. The Company also issued 50,000 shares of Series D-1 preferred stock on April 27, 2001 for total gross proceeds of $50 million. In addition, on January 18, 2002, the Company issued an additional 20,000 shares of Series D-1 preferred stock for total gross proceeds of $20 million.

F-13

MONITRONICS INTERNATIONAL, INC.

NOTES TO FINANCIAL STATEMENTS—(continued)

The activity of redeemable preferred stock is as follows (in thousands except for shares):

	Series A			Series B			Series C			Series C-1			Series D-1			Series D-2			Unaccreted Redemption Value			Total Redeemable Preferred Stock
	Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount
Balance at June 30, 2000	4,000,000	$	5,759	5,000,000	$	6,248	1,409,375	$	30,662	—	$	—	—	$	—	—	$	—	$	(614	)	$	42,055
Issuance of Series C-1 preferred stock to Series C preferred Shareholders	—		—	—		—	—		—	251,420		4,950	—		—	—		—		—			4,950
Issuance of Series D-1 preferred stock	—		—	—		—	—		—	—		—	50,000		50,000	—		—		(524	)		49,476
Accretion to redemption value	—		—	—		—	—		—	—		—	—		—	—		—		114			114
Accrual of preferred stock dividends	—		320	—		400	—		2,613	—		142	—		1,128	—		—		—			4,603
Balance at June 30, 2001	4,000,000	$	6,079	5,000,000	$	6,648	1,409,375	$	33,275	251,420	$	5,092	50,000	$	51,128	—	$	—	$	(1,024	)	$	101,198
Issuance of Series D-1 preferred stock	—		—	—		—	—		—	—		—	20,000		20,000	—		—		(147	)		19,853
Accretion to redemption value	—		—	—		—	—		—	—		—	—		—	—		—		193			193
Accrual of preferred stock dividends	—		320	—		400	—		4,906	—		999	—		8,395	—		—		—			15,020
Balance at June 30, 2002	4,000,000	$	6,399	5,000,000	$	7,048	1,409,375	$	38,181	251,420	$	6,091	70,000	$	79,523	—	$	—	$	(978	)	$	136,264
Accretion to redemption value	—		—	—		—	—		—	—		—	—		—	—		—		214			214
Accrual of preferred stock dividends	—		320	—		400	—		5,672	—		887	—		11,178	—		—		—			18,457
Balance as of June 30, 2003	4,000,000	$	6,719	5,000,000	$	7,448	1,409,375	$	43,853	251,420	$	6,978	70,000	$	90,701	—	$	—	$	(764	)	$	154,935

F-14

MONITRONICS INTERNATIONAL, INC.

NOTES TO FINANCIAL STATEMENTS—(continued)

Dividend Preferences

Series A — The Series A preferred shareholders are entitled to receive dividends at a rate of $0.08 per share per year. The dividends are cumulative and accrue on each share daily, commencing on the date of issuance, whether or not earned or declared. Series A preferred dividends may not be paid if a default exists or the payment of dividends would create a default under the Loan Agreement; or if the Company has any senior subordinated notes or subordinated notes payable outstanding or any accrued and unpaid Series D-1, D-2, C-1, C or B preferred dividends outstanding.

Series B — The declaration and payment of Series B preferred dividends are preferential to the Series A preferred dividends. The Series B preferred shareholders are entitled to receive dividends at a rate of $0.08 per share per year. The dividends are cumulative and accrue on each share daily, commencing on the date of issuance, whether or not earned or declared. Series B preferred dividends may not be paid until the Company has no amounts outstanding under the senior subordinated notes and the subordinated notes; if a default exists or the payment of dividends would create a default under the Loan Agreement; or if there are any accrued and unpaid Series D-1, D-2, C-1, or C preferred dividends outstanding.

Series C and Series C-1 — The declaration and payment of Series C and Series C-1 preferred dividends are preferential to the Series A and B preferred dividends. The Series C and Series C-1 preferred shareholders are generally entitled to receive dividends at the rate of 15%, compounded annually from March 9, 1999, of the redemption price of $19.689579 per share annually beginning September 30, 2001. The dividends are cumulative and compounded annually and the dividend rate increases each year as defined in the Articles of Incorporation. Series C and Series C-1 preferred dividends may not be paid until the Company has no amounts outstanding under the senior subordinated notes and the subordinated notes; or if a default exists or the payment of dividends would create a default under the Loan Agreement; or if there are any accrued and unpaid Series D-1 or Series D-2 preferred dividends outstanding.

Series D-1 and Series D-2 — The declaration and payment of Series D-1 and Series D-2 preferred dividends are preferential to the Series A, B, C, and C-1 preferred dividends.

The Series D-1 and Series D-2 preferred shareholders are entitled to receive dividends at the rate of 13.5% per annum on the sum of $1,000 per share and the amount of any prior accrued or declared but unpaid dividends. Dividends are cumulative and compound semiannually. Series D-1 and Series D-2 preferred dividends may not be paid if a default exists or the payment of dividends would create a default under the Loan Agreement, or if the Company has any senior subordinated notes or subordinated notes payable outstanding.

As of June 30, 2003 and 2002, the aggregate cumulative preferred dividends accrued for Series A, B, C, C-1, D-1 preferred stock were $43,999,000 and $25,542,000, respectively. The accrued preferred dividends are included in the carrying value of each Series of redeemable convertible preferred stock.

Voting Rights

The Series A, C, and D-1 preferred shareholders can vote in conjunction with the Class A common shareholders on an as-if-converted basis on all matters to come before the shareholders of the Company, and Class A common shareholders shall not be entitled to vote as a class on any matter. The Series B preferred shareholders are entitled to vote on only certain matters as defined by the Articles of Incorporation. The Series C-1 and Series D-2 preferred shareholders have no right to vote their shares except as mandated by law and in certain limited circumstances defined by the Articles of Incorporation. The Company cannot, without first obtaining the approval or consent of the holders of at least two-thirds of the Series A preferred stock, voting

F-15

MONITRONICS INTERNATIONAL, INC.

NOTES TO FINANCIAL STATEMENTS—(continued)

separately as a Series, or of the Series B preferred stock, voting separately as a Series, or of the Series C preferred stock, voting separately as a Series, amend its Articles of Incorporation to increase the number of shares of the Series or adversely affect or impair its rights; purchase or redeem any capital stock or any other equity securities or declare or pay any dividend or other distribution thereon, except in accordance with the Articles of Incorporation. The Series C-1 preferred stock, voting separately as a Series, must also approve any such amendment to the Articles of Incorporation. A majority of the Series D-1 preferred stock, voting separately as a series, is also required to amend the provisions of the Articles of Incorporation regarding the capitalization of the Company and the rights and privileges of the Company’s equity securities. Each of the Series A, B, and D-1 preferred stock, voting as separate Series, must approve various other actions, including issuance of capital stock and conducting certain business transactions.

Conversion Rights

At June 30, 2003, each share of Series A preferred stock is convertible into 1.25125 shares of Class A common stock, subject to adjustment, at any time at the holder’s option. As of June 30, 2003, each share of Series C preferred stock was convertible into 1.65828 shares of Class A common stock, subject to adjustment, at any time at the holder’s option. In addition, each share of Series A and C preferred stock shall automatically be converted into shares of Class A common stock at the then effective respective conversion price immediately upon the closing of a qualified public offering, where the price per share, prior to underwriting discounts and commissions, is greater than or equal to $3.00 per share in the case of the Series A and $28.00 per share in the case of the Series C.

Subject to the aforementioned restrictions, accrued and unpaid dividends on the Series A and Series C preferred stock are payable in cash to the shareholders upon conversion of the stock into Class A common stock or, at the option of the Company with regard to Series A preferred stock, a number of shares of Class A common stock having a fair market value, on the date of conversion, equal to the accrued but unpaid dividends.

Upon the closing of a qualified public offering where the price per share, prior to underwriting discounts and commissions, is greater than or equal to $3.00 per share, each share of Series B preferred stock, at the option of the holder, can be converted into shares of Class A common stock as determined by dividing the Series B Redemption Price (as defined) at the time of the public offering by the per share public offering price.

At any time, holders of Series D-1 preferred stock may convert their shares into an equal number of shares of Series D-2 and into shares of Class A common stock. The Series D-1 preferred stock is automatically convertible into shares of Series D-2 preferred stock and shares of Class A common stock upon the closing of a public offering of Class A common stock at a price of at least $28 per share. The conversion ratio is subject to adjustment for future issuances of common stock. The minimum aggregate number of shares into which the Series D-1 would convert would result in the holders of Series D-1 preferred stock owning 3,336,596 shares of Class A common stock as of June 30, 2003.

Series C-1 and Series D-2 preferred stock are not convertible into any other equity security.

Mandatory Redemption Rights

Subject to the rights of Series D-1 preferred shareholders to initiate a sale of the Company prior to redemption, at any time after July 31, 2007 (the Redemption Date) and at the election of the holders of a majority of each of the Series A, B, C and C-1 preferred stock, the Company shall redeem all of the preferred stock of the Series making such demand outstanding on the redemption date up to the maximum amount the Company may lawfully redeem from funds legally available. At the Redemption Date, the Company shall pay in cash a sum per

F-16

MONITRONICS INTERNATIONAL, INC.

NOTES TO FINANCIAL STATEMENTS—(continued)

share (as adjusted to reflect any recapitalization) equal to $1 per share for each of the Series A and Series B and $19.68958 per share for each of the Series C and Series C-1, along with any accrued or declared but unpaid dividends.

The Series B preferred stock must also be redeemed by the Company upon the closing of a qualified public offering, up to the maximum amount the Company may lawfully redeem from the funds legally available. The Company shall pay in cash a sum per share (as adjusted to reflect any recapitalization) equal to $1 per share, along with any accrued or declared but unpaid dividends; provided that if any shares of Series D preferred stock are outstanding, each holder of Series B preferred stock will receive in lieu of cash a number of shares of Class A common stock determined by dividing the Series B redemption price (as defined) at the time of the qualified public offering by the public offering price.

The Series C and Series C-1 preferred shareholders together can also elect to require redemption of their shares at a time prior to the closing of a qualified public offering provided that certain preferred shareholders do not own 28.5% of the voting stock of the Company at that time. The Series C-1 preferred stock must be redeemed by the Company upon closing of its initial public offering of Class A common stock at the same redemption price as above, up to the maximum amount the Company may lawfully redeem from the funds legally available.

The Series D-1 preferred stock is not redeemable. The Series D-2 preferred stock is only redeemable upon the closing of a qualified public offering. The Series D-2 preferred stock must be redeemed upon closing of a qualified public offering (as defined) and, under certain circumstances, a portion of the underlying Class A common stock issued upon conversion of the Series D-1 preferred stock may also be redeemed.

The redemption price for the Series D-2 preferred stock is $1,000 per share, along with any accrued or declared but unpaid dividends. The redemption price for the underlying Class A common stock, if shares are required to be redeemed, is the same price per share as sold in the initial public offering. The Company is prohibited from making an initial public offering if it will not be able to redeem the Series D-2 preferred stock and any required underlying Class A common stock. There are no Series D-2 preferred shares outstanding as of June 30, 2003.

Holders of the majority of Series D-1 preferred stock (or underlying Class A common stock into which it was converted) may, at any time after the earlier of July 31, 2007 or the date that the holders of Series A preferred stock, Series B preferred stock, Series C preferred stock, or Series C-1 preferred stock have demanded a redemption of their shares, initiate procedures for the sale of the Company.

The Company cannot redeem any Series of preferred stock while the senior subordinated notes or the subordinated notes are outstanding or if prohibited under the Loan Agreement. Upon the Redemption Date, any legal funds available will be distributed to the redemption of the Series D-1 and D-2 preferred stock first, and, thereafter, to the Series C and C-1 preferred stock, and, thereafter, to the redemption of the Series B preferred stock, and, thereafter, to the redemption of the Series A preferred stock.

Liquidation Preference

The Series D-1 and Series D-2 preferred shareholders are entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Company to the holders of the Series A preferred stock, Series B preferred stock, Series C preferred stock, Series C-1 preferred stock and Class A and Class B common stock, their entire liquidation preference. The Series D-1 preferred shareholders are entitled to a liquidation preference of $1,000 per share plus any accrued or declared but unpaid dividends. The holders of Series D-2

F-17

MONITRONICS INTERNATIONAL, INC.

NOTES TO FINANCIAL STATEMENTS—(continued)

preferred stock and underlying Class A common stock issued upon conversion of Series D-1 preferred stock are entitled to a liquidation preference of a combined amount of $1,000 per share plus any accrued or declared but unpaid dividends. If there are insufficient funds to pay the full redemption amounts, the available funds will be distributed ratably among the holders of Series D-1 preferred stock and Series D-2 preferred stock in proportion to their respective liquidation values.

Along with the holders of the Class A and B common stock, the Series A and Series D-1 preferred shareholders shall, after payment in full of the preferential liquidation amounts, be entitled to share ratably in any remaining assets and surplus funds of the Company as determined by assuming the conversion of all the Series A and Series D-1 preferred stock into Class A common stock.

The Series C and Series C-1 preferred shareholders are entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Company to the holders of the Series A preferred stock, Series B preferred stock, and common stock, their entire liquidation preference. The Series C preferred shareholders are entitled to a liquidation preference of the greater of $19.68958 per share plus any accrued or declared but unpaid dividends or the amount the holders of Series C preferred stock would be entitled pro rata, together with the Series A preferred stock, the Series D-1 preferred stock and the Class A common stock upon liquidation assuming a conversion of the Series C preferred stock into the greatest number of shares of Class A common stock into which it can be converted. The Series C-1 preferred shareholders are entitled to a liquidation preference of $19.68958 per share plus any accrued or declared but unpaid dividends. If there are insufficient funds to pay the full redemption amounts, the available funds will be distributed ratably among the holders of Series C preferred stock and Series C-1 preferred stock in proportion to their respective liquidation values.

The Series B preferred shareholders are entitled to receive, prior to and in preference to any liquidation preference payments to the Series A preferred or common shareholders, a liquidation preference of $1 per share plus any accrued or declared but unpaid dividends. The Series B preferred shareholders do not share in any remaining assets and surplus funds of the Company after payment of their preferential liquidation amounts.

The Series A preferred shareholders are entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Company to the holders of the common stock, a liquidation preference of $1 per share plus any accrued or declared but unpaid dividends. Along with the holders of the Class A and B common stock, the Series A and Series D-1 preferred shareholders shall, after payment in full of the preferential liquidation amounts, be entitled to share ratably in any remaining assets and surplus funds of the Company as determined by assuming the conversion of all the Series A and Series D-1 preferred stock into Class A common stock.

As of June 30, 2003, the Series A, B, C, C-1, D-1 preferred stock have aggregate liquidation values of $6,719,000, $7,448,000, $43,853,000, $6,978,000, and $90,701,000, respectively.

5. Shareholders’ Net Capital Deficiency

Common Stock

The Class A common shareholders are entitled to one vote per share on all matters voted on by the shareholders of the Company. The Class B common stock has no voting rights. However, at any time, each holder of Class B common stock is entitled to convert any and all shares of Class B common stock into the same number of shares of Class A common stock. Shares of Class B common stock which are converted into shares of Class A common stock will not be reissued.

The Company has reserved the following shares of common stock for future issuance: 15,678,739 shares for the conversion of preferred stock and 3,614,456 shares for the exercise of stock options and warrants.

F-18

MONITRONICS INTERNATIONAL, INC.

NOTES TO FINANCIAL STATEMENTS—(continued)

Stock Warrants

On November 10, 1994, in conjunction with a prior credit agreement, the Company issued 367,238 warrants at fair market value. The agreement required the Company to issue the lender warrants to acquire shares of Class B common stock. Each warrant is exercisable at $0.01 per share and expires on November 10, 2004.

In conjunction with the Company’s various financing transactions, the Company issued, at fair market value, warrants to purchase 319,274 shares of Class A common stock during May 1996, warrants to purchase 147,927 shares of Class A common stock during November 1996, warrants to purchase 1,064,256 shares of Class A common stock during May 1997, and warrants to purchase 1,616,761 shares of Class A common stock during January 2002. Each warrant is exercisable at $0.01 per share and expires between June 30, 2003 and January 17, 2012.

6. Restricted Stock and Stock Option Plan

The Company’s Board of Directors is authorized, under the Company’s 1999 Stock Option Plan (the 1999 Plan), to award options to purchase up to 150,000 shares of Class A common stock to its officers and employees. On April 27, 2001, the Company adopted the 2001 Stock Option Plan (the 2001 Plan), which allows the Company’s Board of Directors to award options to purchase up to 250,000 shares of Class A common stock to its officers and employees. During the year ended June 30, 2003, 25,000 options were granted under the 1999 Plan and no options were granted under the 2001 Plan.

Options granted to date vest ratably over periods not exceeding five years, as specified by the option agreements. On May 22, 1997, the Company amended existing stock option agreements to allow officers and employees to exercise any unvested options outstanding. However, any common stock acquired by an officer or employee exercising their options is restricted stock until it vests in accordance with the vesting schedule of the original stock option agreement. Until the officer or employee has a vested interest in the stock, the officer or employee cannot sell the stock; however, the Company can repurchase the stock at any time during the vesting period.

On April 19, 2002, the Company issued 518,657 shares of Class A common stock to its officers and employees in the form of restricted stock. All shares were issued at a purchase price of $0.01 per share. Of this amount, 291,998 shares were fully vested on date of issuance. The remaining 226,659 shares vest 20% on date of issuance and 20% per year over a four year period.

Stock option transactions for years ended June 30 are summarized as follows:

	2003				2002				2001
	Number of Options		Weighted Average Exercise Price		Number of Options		Weighted Average Exercise Price		Number of Options		Weighted Average Exercise Price
Options outstanding at beginning of year	76,000		$	19.21	90,500		$	18.02	113,470		$	9.83
Options granted	25,000			1.00	—			—	38,000			20.00
Options forfeited	(2,000	)		20.00	(9,500	)		20.00	(16,000	)		15.31
Options exercised	—			—	(5,000	)		0.01	(44,970	)		0.01
Options outstanding at end of year	99,000		$	14.60	76,000		$	19.21	90,500		$	18.02
Options exercisable at end of year	55,100		$	18.57	40,700		$	18.53	33,700		$	15.25
Weighted average grant date fair value of options granted during the year			$	.15			$	—			$	3.98

F-19

MONITRONICS INTERNATIONAL, INC.

NOTES TO FINANCIAL STATEMENTS—(continued)

The following table summarizes information about stock options outstanding at June 30, 2003:

Exercise Prices	Stock Options Outstanding	Stock Options Exercisable	Contractual Life
$0.01	3,000	3,000	.58
1.00	25,000	1,000	9.33
20.00	71,000	51,100	6.79
	99,000	55,100

See Note 1 for comparisons of net income as reported and as adjusted for the pro-forma effects of determining compensation expense in accordance with SFAS 123.

The fair value for the options was estimated at the date of grant using a minimum value option pricing model and the following assumptions: weighted average risk-free interest rate of 5.5%, no dividends expected to be declared, and a weighted average expected life of the option of three years.

7. Income Taxes

The provision for income taxes consists of the following (in thousands):

	2003			2002			2001
Current federal	$	8,255		$	8,163		$	4,728
Current state		1,173			1,102			592
Total current		9,428			9,265			5,320
Deferred federal		(5,922	)		(6,885	)		(5,560	)
Deferred state		(963	)		(585	)		(668	)
Total deferred		(6,885	)		(7,470	)		(6,228	)
Total provision for income taxes	$	2,543		$	1,795		$	(908	)

The differences in income taxes provided and the amounts determined by applying the federal statutory tax rate to the income before income taxes results in the following (in thousands):

	2003		2002			2001
Tax at statutory rate	$	2,142	$	1,558		$	(846	)
Add (deduct):
Nondeductible expenses		25		14			16
State tax (net of federal benefit)		329		252			(75	)
Other		47		(29	)		(3	)
Total provision for income taxes	$	2,543	$	1,795		$	(908	)

F-20

MONITRONICS INTERNATIONAL, INC.

NOTES TO FINANCIAL STATEMENTS—(continued)

The components of net deferred income tax assets as of June 30 are as follows (in thousands):

	2003			2002
Deferred income tax assets:
Book over tax depreciation and amortization	$	29,863		$	23,450
Allowance for doubtful accounts		524			431
Deferred revenue		1,506			1,258
Accrued expenses		502			495
Total deferred tax assets		32,395			25,634
Deferred income tax liabilities:
Other		(370	)		(494	)
Net deferred tax asset	$	32,025		$	25,140

8. Employee Benefit Plan

The Company maintains a tax-qualified, defined contribution plan that meets the requirements of Section 401(k) of the Internal Revenue Code (the Monitronics 401(k) Plan). For the year ended June 30, 2003, the Company, at its election, made contributions to the Monitronics 401(k) Plan. These contributions were allocated among participants based upon the respective contributions made by the participants through salary reductions during the applicable plan year. The Company’s matching contribution is made in cash. For the years ended June 30, 2003, 2002 and 2001, the Company made a matching cash contribution to the plan of approximately $38,000, $41,000 and $37,000, respectively. The funds of the plan are deposited with a trustee and invested at each participant’s option in one or more investment funds.

9. Commitments and Contingencies

The Company leases certain office space and equipment under various noncancelable operating leases. Certain leases have rent escalation clauses associated with them. At June 30, 2003, future minimum payments under such leases are as follows (in thousands):

2004	$	501
2005		493
2006		262
2007		23
Total minimum lease payments	$	1,279

Rental expense for all operating leases was approximately $601,000, $627,000 and $527,000 for the years ended June 30, 2003, 2002 and 2001, respectively.

The Company is subject to various legal proceedings and claims that arise in the ordinary course of its business. In the opinion of management, the amount of ultimate liability with respect to these actions will not have a material impact on the financial position or results of operations of the Company.

10. Subsequent Event

Concurrent with the Subordinated note offering (see Note 3), the Company entered into an agreement to pay its president and chief executive officer a $2.0 million transaction fee in cash within 90 days after the closing of the offering. Additionally, the agreement allows the officer to require the company to purchase 400,000 shares of his Class A common stock for $1.0 million in cash and also allows him the right to sell up to $500,000 in value of his Class A common stock to the Company in each of the next five fiscal years at a purchase price per share based upon a multiple of cash flow.

F-21

MONITRONICS INTERNATIONAL, INC.

BALANCE SHEETS

(In thousands, except share data)

	March 31, 2004			June 30, 2003
	(Unaudited)			(Restated)
Assets
Current assets:
Cash and cash equivalents	$	1,499		$	334
Accounts receivable, net		4,886			4,993
Deferred income taxes		2,561			2,452
Prepaid expenses and other current assets		1,200			909
Total current assets		10,146			8,688
Property and equipment, net		4,061			4,682
Deferred income taxes		34,968			29,573
Subscriber accounts, net of accumulated amortization of $269,995 as of March 31, 2004 and $218,828 as of June 30, 2003		424,586			393,164
Deferred financing costs, net		15,006			6,411
Goodwill		14,795			14,795
Total assets	$	503,562		$	457,313
Liabilities and Shareholders’ Net Capital Deficiency
Current liabilities:
Accounts payable	$	5,057		$	1,891
Accrued expenses		1,840			2,017
Interest payable		2,988			810
Income tax payable		3,296			2,296
Purchase holdbacks		9,682			8,975
Deferred revenue		5,193			3,246
Current portion of long-term debt		1,750			1,313
Total current liabilities		29,806			20,548
Long-term debt, less current portion		379,459			336,660
Redeemable preferred stock, net		170,500			154,935
Commitments and contingencies
Shareholders’ net capital deficiency:
Class A common stock, $.01 par value:
Authorized shares – 50,000,000
Issued and outstanding shares – 3,043,920 as of March 31, 2004 and 2,290,784 as of June 30, 2003		30			23
Class B common stock, $.01 par value:
Authorized shares – 700,000
Issued and outstanding shares – none		—			—
Additional paid-in capital		5			12
Treasury stock, at cost, 785,465 shares as of March 31, 2004 and 384,375 as of June 30, 2003		(8,568	)		(7,568	)
Accumulated deficit		(67,670	)		(47,297	)
Total shareholders’ net capital deficiency		(76,203	)		(54,830	)
Total liabilities and shareholders’ net capital deficiency	$	503,562		$	457,313

See accompanying notes.

F-22

MONITRONICS INTERNATIONAL, INC.

STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended March 31,						Nine Months Ended March 31,
	2004			2003 (Restated)			2004			2003 (Restated)
							(In thousands)
Revenue	$	37,862		$	31,833		$	111,248		$	92,606
Cost of services		4,277			3,574			12,243			10,993
Gross profit		33,585			28,259			99,005			81,613
Operating expenses:
Sales, general and administrative		6,260			5,467			19,205			16,738
Depreciation		514			526			1,620			1,565
Amortization		17,584			14,587			51,167			41,857
		24,358			20,580			71,992			60,160
Operating income		9,227			7,679			27,013			21,453
Other expense:
Interest expense		9,003			5,745			25,626			17,503
Loss on debt refinancing		–			–			8,828			–
		9,003			5,745			34,454			17,503
Income (loss) before income taxes		224			1,934			(7,441	)		3,950
Provision (benefit) for income taxes		79			747			(2,657	)		1,526
Net income (loss)		145			1,187		$	(4,784	)	$	2,424
Preferred dividends accrued		(5,232	)		(4,599	)		(15,426	)		(13,560	)
Accretion of redeemable convertible preferred stock discount		(55	)		(54	)		(163	)		(161	)
Net loss attributable to common stock shareholders	$	(5,142	)	$	(3,466	)	$	(20,373	)	$	(11,297	)

See accompanying notes.

F-23

MONITRONICS INTERNATIONAL, INC.

STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months Ended March 31,
	2004			2003 (Restated)
	(In thousands)
Operating Activities
Net income (loss)	$	(4,784	)	$	2,424
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		52,786			43,421
Amortization of deferred financing costs		1,706			1,333
Write off deferred financing costs		5,934			—
Deferred income taxes		(5,503	)		(4,760	)
Non cash interest accretion		330			582
Changes in current assets and liabilities:
Accounts receivable		107			(1,061	)
Prepaid expenses and other current assets		(291	)		156
Accounts payable		3,166			(873	)
Accrued expenses		2,001			743
Deferred revenue		1,947			998
Income taxes payable		1,000			935
Net cash provided by operating activities		58,399			43,898
Investing Activities
Purchases of property and equipment		(999	)		(732	)
Purchases of subscriber accounts (net of holdbacks)		(81,882	)		(75,387	)
Net cash used in investing activities		(82,881	)		(76,119	)
Financing Activities
Payment of deferred financing costs		(16,235	)		—
Payments of subordinated notes		(32,491	)		—
Payment of unaccreted redemption costs		(24	)		—
Purchase of treasury stock		(1,000	)		—
Proceeds from credit facility		248,800			52,300
Payments of credit facility		(332,460	)		(20,000	)
Proceeds from issuance of Senior Subordinated Notes		159,057			—
Net cash provided by financing activities		25,647			32,300
Increase in cash and cash equivalents		1,165			79
Cash and cash equivalents at beginning of period		334			17
Cash and cash equivalents at end of period	$	1,499		$	96
Cash paid during the period for:
Income taxes	$	—		$	5,219
Interest	$	20,572		$	13,791
Noncash financing transactions:
Accrued preferred stock dividends	$	15,426		$	13,560

See accompanying notes.

F-24

MONITRONICS INTERNATIONAL, INC.

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

1. Description of Business and Summary of Significant Accounting Policies

Description of Business

Monitronics International, Inc. (the Company) provides security alarm monitoring and related services to residential and business subscribers throughout the United States. The Company monitors signals arising from burglaries, fires and other events through security systems installed by its dealers at subscribers’ premises.

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the accompanying unaudited financial statements contain all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation.

The balance sheet at June 30, 2003 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.

Restatement of Prior Period Financial Statements

In the third quarter of fiscal year 2004, the Company changed its method of amortizing subscriber accounts from a 10-year straight-line method to a 10-year 135% declining balance method. The Company believes the 10-year 135% declining balance method provides a better matching to individual subscriber revenues. In conjunction with this change in amortization method, the Company has restated prior period financial statements.

The Company has previously restated its financial statements to properly record deferred revenue related to billings to our subscribers. The restatement adjusted a small timing difference in revenue recognition that resulted when a subscriber’s monthly service period extended beyond a month end. Historically, we recognized the full monthly invoice as revenue in the current month instead of as revenue for the portion of the bill attributable to service provided in the current month and deferred revenue for the portion of the bill attributable to service to be provided in the next month.

The effect of the restatements on previously reported revenue, amortization and net income for the nine months ended March 31, 2003 is as follows:

Selected Statement of Operations Changes

	Three Months Ended March 31, 2003 (Unaudited)							Nine Months Ended March 31, 2003 (Unaudited)
	Previously Reported		Adjustment			Adjusted Balance		Previously Reported		Adjustment			Adjusted Balance
	(in thousands)							(in thousands)
Revenue	$	32,035	$	(202	)	$	31,833	$	93,106	$	(500	)	$	92,606
Amortization	$	14,028	$	559			$14,587	$	40,176	$	1,681		$	41,857
Net Income	$	1,663	$	(476	)	$	1,187	$	3,789	$	(1,365	)	$	2,424

F-25

MONITRONICS INTERNATIONAL, INC.

NOTES TO FINANCIAL STATEMENTS—(continued)

(Unaudited)

The effect of the restatements on previously reported balances for subscriber accounts and total shareholders’ net capital deficiency as of June 30, 2003 is as follows:

Selected Balance Sheet Changes

	As of June 30, 2003
	Previously Reported			Adjustment			Adjusted Balance
	(in thousands)
Subscriber accounts (net)	$	416,435		$	(23,271	)	$	393,164
Total shareholders’ net capital deficiency	$	(40,152	)	$	(14,678	)	$	(54,830	)

Stock Compensation

The Company accounts for stock-based employee compensation arrangements in accordance with the provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and related interpretations, and complies with the disclosure provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123) as amended by SFAS No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure. Under APB 25, compensation cost is recognized over the vesting period based on the difference, if any, on the date of grant between the fair market value of the Company’s common stock and the exercise price of the stock option granted. Generally, the Company grants options with an exercise price at least equal to or above the fair market value of the Company’s common stock on the date of the grant and, as a result, generally does not record compensation cost.

The following table illustrates the effect on net income (loss) if the Company had applied the fair value recognition provisions of SFAS 123 to stock-based employee compensation (in thousands):

	Three Months Ended March 31,						Nine Months Ended March 31,
	2004			2003			2004			2003
				(Restated)						(Restated)
Net income (loss) as reported	$	145		$	1,187		$	(4,784	)	$	2,424
Deduct: Total stock based employee compensation expense determined under fair value based method for all awards, net value of related tax effects		(3	)		(6	)		(10	)		(24	)
Pro forma net income (loss)	$	142		$	1,181		$	(4,794	)	$	2,400

Recent Accounting Pronouncements

In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51. FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in an entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective immediately for all new variable interest entities created or acquired after December 31, 2003. FIN 46 requires application of the interpretation to all entities subject to the interpretation no later than the beginning of the first reporting period that begins after December 15, 2004. After conducting an evaluation of the effect of the adoption of FIN 46, the Company concluded that there were no variable interest entities to be consolidated. The adoption of FIN 46 is not expected to have a material impact on our financial position or on our results of operations.

F-26

MONITRONICS INTERNATIONAL, INC.

NOTES TO FINANCIAL STATEMENTS—(continued)

(Unaudited)

In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150 (SFAS 150), Accounting For Certain Financial Instruments with Characteristics of both Liabilities and Equity. This statement established standards for how an issuer classifies and measures in its statement of financial position certain financial instruments with characteristics of both liabilities and equity. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first fiscal period beginning after December 15, 2003 and must be applied prospectively by reporting the cumulative effect of a change in an accounting principle for financial instruments created before the issuance date of the Statement and still existing at the beginning of the interim period of adoption. The Company has not fully evaluated the impact of SFAS 150.

2. Long-Term Debt

Long-term debt consists of the following (in thousands):

	March 31, 2004		June 30, 2003
Revolving credit line and term loan payable	$	201,425	$	285,085
Senior subordinated notes payable		160,000		12,000
Subordinated notes payable		20,674		40,888
		382,099		337,973
Less: Discount		890		—
Less: Current portion		1,750		1,313
	$	379,459	$	336,660

At June 30, 2003, the Company had a $329.5 million credit facility with various financial institutions, consisting of a $129.5 million revolving credit line, a $180 million term loan, and a $20 million term loan. As of June 30, 2003, the Company had $85.1 million in borrowings outstanding under the revolving credit line and had borrowed the entire amount committed under the term loans.

On August 25, 2003, the Company issued $160.0 million of senior subordinated notes (the Senior Subordinated Notes) at 11.75% at a discount of $0.94 million with a maturity date of September 1, 2010. Interest payments are to be made semi-annually in cash in arrears on March 1 and September 1 of each year beginning on March 1, 2004. In accordance with the registration rights agreement associated with these notes, Monitronics began accruing special interest on the Senior Subordinated Notes as of March 22, 2004 because the exchange offer registration statement had not been declared effective as of that date. Such special interest shall accrue up to but not including the date that the registration statement is declared effective. Special interest is accruing at a rate of 0.25% per annum during the 90-day period including and following March 22, 2004 and shall increase by an additional 0.25% per annum in each successive 90-day period, but in no event shall such rate exceed 1.5% per annum. On August 25, 2003, the Company also entered into a new credit facility agreement comprised of a $175.0 million term loan that matures in fiscal year 2010 and a $145.0 million revolving credit facility that matures in fiscal year 2009. Payments under the term loan are payable in quarterly installments from December 31, 2003 through June 30, 2009. The quarterly payment is calculated based upon the amount of the original facility multiplied by 0.25% for the quarters ended December 31, 2003 through September 30, 2006, 1.25% for the quarters ended December 31, 2006 through September 30, 2007 and 3.00% for the quarters ended December 31, 2007 through June 30, 2009 with the remaining balance due at maturity. The revolving credit facility, which matures in fiscal year 2009, is subject to possible earlier quarterly payments beginning December 31, 2006 resulting from required lender commitment reductions beginning on such date. Proceeds from the issuance of the

F-27

MONITRONICS INTERNATIONAL, INC.

NOTES TO FINANCIAL STATEMENTS—(continued)

(Unaudited)

Senior Subordinated Notes and borrowings under the new credit facility were used primarily to repay the Company’s existing credit facility and its $12 million senior subordinated notes payable, to repurchase $20.5 million principal amount of its subordinated notes at a repurchase price of approximately $23.2 million and to pay debt issuance costs. As a result of the above transactions, the Company incurred a loss on redemption of its debt of $2.8 million and expensed $6.0 million of its previously capitalized deferred financing costs. These amounts are included in the caption “Other Expense” on the statement of operations for the nine-month period ended March 31, 2004. The terms of the remaining $20.7 million principal amount of the subordinated notes were amended, and the maturity date was extended to March 1, 2010. Interest on the subordinated notes originally accrued at 13.5% per annum with interest payable semi-annually at a rate of 12% per annum with the remaining 1.5% interest per annum added to the outstanding principal amount of the subordinated notes. The 1.5% interest rate increased to 2.5% per annum on December 15, 2003 when the subordinated notes were not repurchased by that date, and the increased rate was applied retroactively to August 25, 2003.

The new credit facility and subordinated notes have certain financial tests which must be met on a quarterly basis, including maximum total senior debt and total debt to quarterly annualized net operating income, minimum interest coverage ratio, minimum fixed charge coverage ratio and an annual capital expenditure limit. Indebtedness under the new credit facility is secured by all of the assets of the Company.

At March 31, 2004, the Company had $27.3 million in borrowings outstanding under the $145 million revolving credit facility and had $174.1 million in borrowings outstanding under the term loan. Further, the Company had $117.7 million in availability under the revolving credit line and is charged a commitment fee of 0.75% on the average daily unused portion. The revolving credit line bears interest at a rate of either prime plus 3.0% or LIBOR plus 4.0%. The term loan bears interest at a rate of either prime plus 3.5% or LIBOR plus 4.5%. At March 31, 2004, borrowings under the credit facility bear interest at a weighted average interest rate of 5.6%. Interest incurred on borrowings is payable monthly in arrears.

Scheduled maturities (as defined) of long-term debt at March 31, 2004, utilizing the required payment schedule of the Senior Subordinated Notes, subordinated notes and the credit facility are as follows (in thousands):

2004	$	438
2005		1,750
2006		1,750
2007		7,000
2008		17,937
Thereafter		353,224
	$	382,099

The Company also utilizes interest rate cap agreements, as required, to manage its exposure to variable interest rates under the credit facility. As of March 31, 2004, these interest rate caps provide that the interest rate on approximately $120 million of borrowings under the credit facility cannot exceed an interest rate of 10%. The interest rate caps also expire at various dates over the next two years. The Company records these derivatives at fair value in the balance sheet and any changes in fair value are recorded in the statement of operations. As of March 31, 2004, the fair value of the interest rate caps was nominal.

Concurrent with the Senior Subordinated Notes offering, the Company entered into an agreement with James R. Hull, the Company’s president and chief executive officer, pursuant to which the Company paid

F-28

MONITRONICS INTERNATIONAL, INC.

NOTES TO FINANCIAL STATEMENTS—(continued)

(Unaudited)

Mr. Hull a $2 million transaction fee in cash at the closing of the August 25, 2003 refinancing. This fee was capitalized as deferred financing costs. On November 7, 2003, Mr. Hull exercised his right to require the Company to purchase 400,000 shares of his Class A common stock at a purchase price of $1 million in cash. The agreement also gives Mr. Hull the right to sell up to $500,000 in value of his Class A common stock to the Company in each of the subsequent five fiscal years at purchase prices per share based on a multiple of the Company’s cash flow. Based on the fair market value of the Company’s stock at the time of the agreement, the Company recorded no compensation expense in connection with this agreement. Further, no compensation expense was recorded upon the repurchase of Mr. Hull’s shares due to no change in fair value.

The Company paid an advisory fee of $2.7 million to ABRY Partners, LLC, an affiliate of ABRY Capital Partners, L.P., in connection with the August 25, 2003 refinancing. This fee was capitalized as deferred financing costs. An affiliate of ABRY Capital Partners, L.P. purchased a portion of the Senior Subordinated Notes offered in this refinancing transaction.

3. Stock Warrants, Restricted Stock and Stock Options

On August 25, 2003, warrants that had been issued in conjunction with the $12 million senior subordinated notes were automatically converted into 750,136 shares of the Company’s Class A Common stock upon repayment in full of the notes. In addition, during the nine months ended March 31, 2004, 1,090 unvested restricted shares were repurchased by the Company. Further, 3,000 shares of Class A Common stock were issued following the exercise of stock options with a strike price of $0.01 and 4,000 stock options were forfeited during the nine months ended March 31, 2004.

4. Commitments and Contingencies

The Company is subject to various legal proceedings and claims that arise in the ordinary course of its business. In the opinion of management, the amount of ultimate liability with respect to these actions will not have a material impact on the financial position or results of operations of the Company.

5. Subsequent Events

In May 2004, the Company received approval from the Internal Revenue Service to change its tax method of accounting for a substantial portion of its subscriber accounts. The Company previously amortized all of its subscriber accounts for tax purposes over a 15-year period. Under the new method, the Company will amortize a substantial portion of its subscriber accounts over a 10-year period. As a result, the Company requested a refund of federal income taxes paid for its tax years ended June 30, 2003 and June 30, 2001 and a portion of the federal income taxes paid for its tax period ended June 30, 2002. The requested refund amount was $17.6 million, of which the Company received $9.3 million in June 2004. The entire refund is subject to routine audit by the Internal Revenue Service. On July 19, 2004, the Company received notice from the Internal Revenue Service that an audit would be conducted.

On July 14, 2004, certain shareholders of the Company entered into a recapitalization with the Company in which the Company’s existing preferred shareholders elected to exchange all of their shares of preferred stock, Class A common stock and warrants to purchase Class A common stock for shares of a newly created Series A preferred stock or Class A common stock based on the exchange terms negotiated amongst such shareholders. Monitronics also redeemed approximately $5.6 million of the Series C and Series C-1 preferred stock held by one of its preferred shareholders who then sold the Class A common stock it received in exchange for its remaining Series C and Series C-1 preferred stock to two new investors. The Company refers to the forgoing transactions as the “recapitalization.” The Company financed the costs of the recapitalization, including the $5.6 million redemption payment and approximately $1.0 million of fees and expenses, with borrowings under its senior credit facility.

F-29

Offer to Exchange up to

$160,000,000 11 ³/4% Senior Subordinated Notes due 2010

that have been registered under

the Securities Act of 1933

for

$160,000,000 11 ³/4% Senior Subordinated Notes due 2010

PROSPECTUS

                    , 2004

We have not authorized any dealer, salesperson, or other person to give any information or represent anything not contained in this prospectus or the letter of transmittal. This prospectus and the letter of transmittal do not offer to sell or ask you to by any securities in any jurisdiction where it is unlawful.

Until             , all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is an addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 20. Indemnification of Directors and Officers

Article 2.02-1 of the Texas Business Corporation Act (the “TBCA”) provides that Monitronics International, Inc. (the “Company”), as a Texas corporation, may indemnify a person who was, is or is threatened to be made a named defendant or respondent in a proceeding because the person is or was a director or officer against judgments, penalties, fines, settlements and reasonable expenses (including court costs and attorneys’ fees) actually incurred by the person in connection with the proceeding if such person acted in good faith, in a manner reasonably believed to be not opposed to the best interests of the Company, and, with respect to any criminal proceeding, had no reasonable cause to believe his conduct was unlawful. The Company is required by Article 2.02-1 of the TBCA to indemnify a director or officer against reasonable expenses (including court costs and attorneys’ fees) incurred by him in connection with a proceeding in which he is a named defendant or respondent because he is or was a director or officer if he has been wholly successful, on the merits or otherwise, in the defense of the proceeding. The statute provides that indemnification pursuant to its provisions is not exclusive of other rights of indemnification to which a person may be entitled under any bylaw, agreement, vote of shareholders or disinterested directors, or otherwise.

The Company’s Bylaws provide for the indemnification of all current and former directors and officers to the fullest extent permitted by the TBCA.

The Company has entered into indemnification agreements with its directors and executive officers, and intends to enter into indemnification agreements with any new directors and executive officers in the future.

Item 21. Exhibits and Financial Statement Schedules

a) Exhibits. The following exhibits are filed as part of this Registration Statement:

Exhibit Number	Description
2.1†	Recapitalization Agreement, dated July 14, 2004, among Monitronics International, Inc., Austin Ventures III-A, L.P., Austin Ventures III-B, L.P., Austin Ventures V, L.P., Austin Ventures V Affiliates Fund, Capital Resource Lenders II, L.P., ABRY Partners IV, L.P., ABRY Investment Partnership, L.P., Windward Capital Partners II, L.P., Windward Capital LP II, LLC, New York Life Capital Partners II, L.P., PPM America Private Equity Fund LP and The Northwestern Mutual Life Insurance Company
3.1†	Restated Articles of Incorporation of Monitronics International, Inc.
3.2	Bylaws of Monitronics International, Inc. (previously filed as Exhibit 3.2 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
4.1	Form of Global Note for the 11¾% Senior Subordinated Notes due 2010 of Monitronics International, Inc. (contained as an exhibit to Exhibit 4.2 hereto)
4.2	Indenture, dated as of August 25, 2003, by and between Monitronics International, Inc. and The Bank of New York Trust Company of Florida, N.A. with respect to the 11¾% Senior Subordinated Notes due 2010 (previously filed as Exhibit 4.2 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
4.3	Registration Rights Agreement, dated as of August 25, 2003, by and among Monitronics International, Inc. and Banc of America Securities LLC, Fleet Securities, Inc., ABN AMRO Incorporated, Banc One Capital Markets, Inc., Harris Nesbitt Corp., Natcity Investments, Inc., U.S. Bancorp Piper Jaffray Inc. and Wells Fargo Securities, LLC (previously filed as Exhibit 4.3 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)

II-1

Exhibit Number	Description
5.1	Opinion of Vinson & Elkins L.L.P. (previously filed as Exhibit 5.1 to Amendment No. 1 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
10.1	Credit Agreement, dated as of August 25, 2003, by and among Monitronics International, Inc., the lenders (named therein), Fleet National Bank, as administrative agent for each of the other credit parties thereto, and Bank of America, N.A., as syndication agent for each of the other credit parties thereto (previously filed as Exhibit 10.1 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
10.2†	First Amendment to Credit Agreement, dated July 14, 2004, by and among Monitronics International, Inc., the lenders (named therein), Fleet National Bank, as administrative agent for each of the other credit parties thereto, and Bank of America, N.A., as syndication agent for each of the other credit parties thereto
10.3	Security Agreement, dated as of August 25, 2003, by and among Monitronics International, Inc., each of the subsidiaries of Monitronics International, Inc. from time to time party thereto and Fleet National Bank, as administrative agent for the lenders from time to time party to the Credit Agreement dated August 25, 2003 (previously filed as Exhibit 10.2 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
10.4	Collateral Patent, Trademark, Copyright and License Agreement, dated August 25, 2003, by and among Monitronics International, Inc. and Fleet National Bank, as administrative agent for the lenders from time to time party to the Credit Agreement dated August 25, 2003 (previously filed as Exhibit 10.3 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
10.5	Guarantee Agreement, dated as of August 25, 2003, by and among Monitronics International, Inc., each of the subsidiaries of Monitronics International, Inc. from time to time party thereto and Fleet National Bank, as administrative agent under the Credit Agreement dated August 25, 2003 (previously filed as Exhibit 10.4 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
10.6†	Amended and Restated Affiliate Subordination Agreement, dated as of July 14, 2004, by and among Austin Ventures III-A, L.P., Austin Ventures III-B, L.P., Austin Ventures V, L.P., Austin Ventures V Affiliates Fund, L.P., Capital Resource Lenders II, L.P., ABRY Partners IV, L.P., ABRY Investment Partnership, L.P., New York Life Capital Partners II, L.P., PPM America Private Equity Fund LP, The Northwestern Mutual Life Insurance Company, Hull Family Limited Partnership, James Hull, Robert Sherman, Michael Gregory, Michael Meyers and Stephen Hedrick, as subordinated creditors, and Fleet National Bank, as secured party for the lenders from time to time party to the Credit Agreement dated August 25, 2003
10.7	Intercreditor and Subordination Agreement, dated as of August 25, 2003, by and among Monitronics International, Inc., The Northwestern Mutual Life Insurance Company and The Bank of New York Trust Company of Florida, N.A. (previously filed as Exhibit 10.6 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
10.8	Intercreditor and Subordination Agreement, dated as of August 25, 2003 by and among Monitronics International, Inc., Fleet National Bank, as administrative agent for the lenders from time to time party to the Credit Agreement, and The Northwestern Mutual Life Insurance Company (previously filed as Exhibit 10.7 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
10.9	Pledge Agreement, dated as of August 25, 2003, by and between The Northwestern Mutual Life Insurance Company, as pledgor, and Fleet National Bank, as administrative agent for the lenders from time to time party to the Credit Agreement dated August 25, 2003 (previously filed as Exhibit 10.8 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)

II-2

Exhibit Number	Description
10.10†	Amended and Restated Pledge Agreement, dated as of July 14, 2004, by and among Austin Ventures III-A, L.P., Austin Ventures III-B, L.P., Austin Ventures V, L.P., Austin Ventures V Affiliates Fund, L.P., Capital Resource Lenders II, L.P., ABRY Partners IV, L.P., ABRY Investment Partnership, L.P., New York Life Capital Partners II, L.P., PPM America Private Equity Fund LP, Hull Family Limited Partnership, James Hull, Robert Sherman, Michael Gregory, Michael Meyers, and Stephen Hedrick, as pledgors, and Fleet National Bank, as administrative agent for the lenders from time to time party to the Credit Agreement dated August 25, 2003
10.11	Warrant Agreement, dated November 10, 1994, by and between AV Alarm, Inc. (now known as Monitronics International, Inc.) and Heller Financial, Inc. (previously filed as Exhibit 10.10 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
10.12	First Amendment to Warrant Agreement, dated August 12, 1998, by and between Monitronics International, Inc. and Heller Financial, Inc. (previously filed as Exhibit 10.11 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
10.13	Affiliate Registration Agreement, dated October 21, 1994, by and among AV Alarm, Inc. (now known as Monitronics International, Inc.) and James R. Hull (previously filed as Exhibit 10.14 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
10.14	Amendment to Affiliate Registration Agreement, dated November 10, 1994, by and among AV Alarm, Inc. (now known as Monitronics International, Inc.) and James R. Hull, as shareholder, and Austin Ventures III-A, L.P. and Austin Ventures III-B, L.P., as purchasers (previously filed as Exhibit 10.15 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
10.15†	Fifth Amended and Restated Registration Agreement, dated July 14, 2004, by and among Monitronics International, Inc., and Austin Ventures III-A, L.P., Austin Ventures III-B, L.P., Austin Ventures V, L.P., Austin Ventures V Affiliates Fund, L.P., Capital Resource Lenders II, L.P., ABRY Partners IV, L.P., ABRY Investment Partnership, L.P., New York Life Capital Partners II, L.P., PPM America Private Equity Fund, LP and The Northwestern Mutual Life Insurance Company, as purchasers
10.16†	Fifth Amended and Restated Shareholders Agreement, dated July 14, 2004, by and among Monitronics International, Inc. and Austin Ventures III-A, L.P., Austin Ventures III-B, L.P., Austin Ventures V, L.P., Austin Ventures V Affiliates Fund, L.P., Capital Resource Lenders II, L.P., ABRY Partners IV, L.P., ABRY Investment Partnership, L.P., New York Life Capital Partners II, L.P., PPM America Private Equity Fund LP, The Northwestern Mutual Life Insurance Company, as purchasers, Hull Family Limited Partnership, L.P., Robert N. Sherman, Michael Meyers, Stephen Hedrick, and Michael Gregory, as common shareholders
10.17	Subordinated Note and Warrant Purchase Agreement, dated January 18, 2002, by and between Monitronics International, Inc. and The Northwestern Mutual Life Insurance Company (previously filed as Exhibit 10.30 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
10.18	First Amendment to Subordinated Note and Warrant Purchase Agreement, dated August 25, 2003, by and between Monitronics International, Inc. and The Northwestern Mutual Life Insurance Company (previously filed as Exhibit 10.31 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
10.19†	Second Amendment to Subordinated Note and Warrant Purchase Agreement, dated July 14, 2004, by and between Monitronics International, Inc. and The Northwestern Mutual Life Insurance Company
10.20	Employment Agreement, effective as of October 21, 1994, by and between AV Alarm, Inc. (now known as Monitronics International, Inc.) and James R. Hull (previously filed as Exhibit 10.33 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)

II-3

Exhibit Number	Description
10.21	Agreement, dated as of August 18, 2003, by and between James R. Hull and Monitronics International, Inc. (previously filed as Exhibit 10.34 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
10.22	Employment Agreement, effective as of October 21, 1994, by and between AV Alarm, Inc. (now known as Monitronics International, Inc.) and Robert N. Sherman (previously filed as Exhibit 10.35 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
10.23	Employment Agreement, effective as of February 1, 1995, by and between AV Alarm, Inc. (now known as Monitronics International, Inc.) and Michael D. Gregory (previously filed as Exhibit 10.36 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
10.24	Form of Indemnification Agreement by and between Monitronics International, Inc. and each of James R. Hull, Blaine F. Wesner, Kenneth P. DeAngelis, Peter S. Macdonald, Stephen M. Jenks, John Dirvin and Jay M. Grossman, Erik Brooks, Royce Yudkoff and Brent Stone (previously filed as Exhibit 10.37 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
10.25	Form of Indemnification Agreement by and between Monitronics International, Inc. and each of Michael R. Meyers, Robert N. Sherman, Stephen M. Hedrick, Michael D. Gregory, Barry P. Johnson and Rick L. Hudson (previously filed as Exhibit 10.38 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
10.26	Commercial Lease Agreement, dated April 24, 2000, by and between Monitronics International, Inc. and Valley View Tech, Inc. (previously filed as Exhibit 10.39 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
10.27	Commercial Lease Agreement, dated June 22, 1998, by and between Monitronics International, Inc. and Valley View Tech, Inc. (previously filed as Exhibit 10.40 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
10.28	First Amendment to Commercial Lease Agreement, dated April 24, 2000, by and between Monitronics International, Inc. and Valley View Tech, Inc. (previously filed as Exhibit 10.41 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
10.29	Second Amendment to Commercial Lease Agreement, dated September 27, 2001, by and between Monitronics International, Inc. and Valley View Tech, Inc. (previously filed as Exhibit 10.42 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
10.30	Commercial Lease Agreement, dated March 18, 1999, by and between Monitronics International, Inc. and Valley View Tech, Inc. (previously filed as Exhibit 10.43 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
10.31	First Amendment of Lease, dated April 24, 2000, by and between Monitronics International, Inc. and Valley View Tech, Inc. (previously filed as Exhibit 10.44 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
10.32	Commercial Lease Agreement, dated December 9, 1991, by and between My Alarm, Inc. (now known as Monitronics International, Inc.) and TDC Dallas Partners No. 2, Ltd. (previously filed as Exhibit 10.45 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
10.33	First Amendment of Lease, dated February 17, 1997, by and between Monitronics International, Inc. and TDC Dallas Partners No. 2, Ltd. (previously filed as Exhibit 10.46 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)

II-4

Exhibit Number	Description
10.34	Second Amendment of Lease, dated September 17, 1997, by and between Monitronics International, Inc. and TDC Dallas Partners No. 2, Ltd. (previously filed as Exhibit 10.47 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
10.35	Third Amendment of Lease, dated August 31, 2001, by and between Monitronics International, Inc. and MRP/VV, L.P. (previously filed as Exhibit 10.48 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
10.36	1999 Stock Option Plan of Monitronics International, Inc. (previously filed as Exhibit 10.49 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
10.37	2001 Stock Option Plan of Monitronics International, Inc. (previously filed as Exhibit 10.50 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
10.38	Employment Agreement, effective as of September 1, 2003, by and between Monitronics International, Inc. and Michael R. Meyers (previously filed as Exhibit 10.51 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
10.39	Lease Agreement, dated May 3, 2004, by and between Monitronics International, Inc. and AGF Valley View II, Ltd. (previously filed as Exhibit 10.52 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
10.40†	Stock Purchase Agreement, dated July 14, 2004, among Monitronics International, Inc., Windward Capital Partners II, L.P., Windward Capital LP II, LLC, New York Life Capital Partners II, L.P. and PPM America Private Equity Fund LP
12.1	Computation of ratio of earnings to fixed charges (previously filed as Exhibit 12.1 to Amendment No. 2 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
12.2	Computation of pro forma ratio of earnings to fixed charges (previously filed as Exhibit 12.2 to Amendment No. 2 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
23.1†	Consent of Ernst & Young LLP
23.2	Consent of Vinson & Elkins L.L.P. (set forth in Exhibit 5.1 hereof)
24.1	Power of Attorney for James R. Hull, Michael R. Meyers, Jay M. Grossman and Blaine F. Wesner (previously filed and set forth in signature page of the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
24.2†	Power of Attorney for Erik Brooks
24.3†	Power of Attorney for Roger Yudkoff
24.4†	Power of Attorney for Brent Stone
25.1	Form T-1 of The Bank of New York Trust Company of Florida, N.A. (previously filed as Exhibit 25.1 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated by reference)
99.1	Form of Letter of Transmittal for 11 3/4% Senior Subordinated Notes due 2010 (previously filed as Exhibit 99.1 to Amendment No. 2 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)

II-5

Exhibit Number	Description
99.2	Form of Notice of Guaranteed Delivery of 11 3/4% Senior Subordinated Notes due 2010 (previously filed as Exhibit 99.2 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
99.3	Form of Letter to Registered Holders and DTC Participants (previously filed as Exhibit 99.3 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
99.4	Form of Letter to Clients (previously filed as Exhibit 99.4 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)

† Filed herewith.

b) Financial Statement Schedules. The following financial statment schedule of the Company is submitted herewith:

Schedule II — Valuation and Qualifying Accounts and Reserves

All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.

Item 22. Undertakings

The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

(i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Securities and Exchange Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement;

(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;

(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof; and

(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the

II-6

registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue.

The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in this registration statement when it became effective.

II-7

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the undersigned registrant has duly caused this Amendment No. 3 to Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Dallas, State of Texas, on the 29^th day of July, 2004.

MONITRONICS INTERNATIONAL, INC.
By:	/s/  JAMES R. HULL
	James R. Hull Chief Executive Officer and President

Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 3 to Registration Statement has been signed by the following persons in the capacities indicated on July 29, 2004.

Signature	Title
* James R. Hull	President, Chief Executive Officer and Chairman of the Board (Principal Executive Officer)
/s/  MICHAEL R. MEYERS Michael R. Meyers	Vice President, Chief Financial Officer and Assistant Secretary (Principal Financial Officer and Principal Accounting Officer)
* Erik Brooks	Director
* Jay M. Grossman	Director
* Brent Stone	Director
* Blaine F. Wesner	Director
* Royce Yudkoff	Director

*By:	/s/    MICHAEL R. MEYERS
	Michael R. Meyers Attorney-in-Fact

II-8

Report of Independent Registered Public Accounting Firm

We have audited the financial statements of Monitronics International, Inc. as of June 30, 2003 and 2002, and for each of the three years in the period ended June 30, 2003, and have issued our report thereon dated August 25, 2003, except for restatement as discussed in Note 1, as to which the date is May 14, 2004 (included elsewhere in this Registration Statement). Our audits also included the financial statement schedule listed in Item 21(b) of this Registration Statement. This schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion based on our audits.

In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

/s/  Ernst & Young LLP

Fort Worth, Texas

August 25, 2003,

except for restatement as discussed in Note 1,

as to which the date is May 14, 2004

SCHEDULE II

MONITRONICS INTERNATIONAL, INC.

VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

For the fiscal years ended June 30, 2003, 2002, and 2001 and the nine months ended March 31, 2004

Description	Balance at Beginning of Period		Charged to Costs and Expenses	Deductions		Balance at End of Period
	(in thousands)
Nine months ended March 31, 2004
Allowance for doubtful accounts (unaudited)	$	1,398	2,550	(2,272	)(1)	$	1,676
Year ended June 30, 2003
Allowance for doubtful accounts	$	1,148	4,090	(3,840	)(1)	$	1,398
Year ended June 30, 2002
Allowance for doubtful accounts	$	732	2,515	(2,099	)(1)	$	1,148
Year ended June 30, 2001
Allowance for doubtful accounts	$	942	2,205	(2,415	)(1)	$	732

(1) Bad debts written off, less recoveries.

INDEX TO EXHIBITS

Exhibit Number	Description
2.1†	Recapitalization Agreement, dated July 14, 2004, among Monitronics International, Inc., Austin Ventures III-A, L.P., Austin Ventures III-B, L.P., Austin Ventures V, L.P., Austin Ventures V Affiliates Fund, Capital Resource Lenders II, L.P., ABRY Partners IV, L.P., ABRY Investment Partnership, L.P., Windward Capital Partners II, L.P., Windward Capital LP II, LLC, New York Life Capital Partners II, L.P., PPM America Private Equity Fund LP and The Northwestern Mutual Life Insurance Company
3.1†	Restated Articles of Incorporation of Monitronics International, Inc.
3.2	Bylaws of Monitronics International, Inc. (previously filed as Exhibit 3.2 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
4.1	Form of Global Note for the 11¾% Senior Subordinated Notes due 2010 of Monitronics International, Inc. (contained as an exhibit to Exhibit 4.2 hereto)
4.2	Indenture, dated as of August 25, 2003, by and between Monitronics International, Inc. and The Bank of New York Trust Company of Florida, N.A. with respect to the 11¾% Senior Subordinated Notes due 2010 (previously filed as Exhibit 4.2 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
4.3	Registration Rights Agreement, dated as of August 25, 2003, by and among Monitronics International, Inc. and Banc of America Securities LLC, Fleet Securities, Inc., ABN AMRO Incorporated, Banc One Capital Markets, Inc., Harris Nesbitt Corp., Natcity Investments, Inc., U.S. Bancorp Piper Jaffray Inc. and Wells Fargo Securities, LLC (previously filed as Exhibit 4.3 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
5.1	Opinion of Vinson & Elkins L.L.P. (previously filed as Exhibit 5.1 to Amendment No. 1 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
10.1	Credit Agreement, dated as of August 25, 2003, by and among Monitronics International, Inc., the lenders (named therein), Fleet National Bank, as administrative agent for each of the other credit parties thereto, and Bank of America, N.A., as syndication agent for each of the other credit parties thereto (previously filed as Exhibit 10.1 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
10.2†	First Amendment to Credit Agreement, dated July 14, 2004, by and among Monitronics International, Inc., the lenders (named therein), Fleet National Bank, as administrative agent for each of the other credit parties thereto, and Bank of America, N.A., as syndication agent for each of the other credit parties thereto
10.3	Security Agreement, dated as of August 25, 2003, by and among Monitronics International, Inc., each of the subsidiaries of Monitronics International, Inc. from time to time party thereto and Fleet National Bank, as administrative agent for the lenders from time to time party to the Credit Agreement dated August 25, 2003 (previously filed as Exhibit 10.2 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
10.4	Collateral Patent, Trademark, Copyright and License Agreement, dated August 25, 2003, by and among Monitronics International, Inc. and Fleet National Bank, as administrative agent for the lenders from time to time party to the Credit Agreement dated August 25, 2003 (previously filed as Exhibit 10.3 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
10.5	Guarantee Agreement, dated as of August 25, 2003, by and among Monitronics International, Inc., each of the subsidiaries of Monitronics International, Inc. from time to time party thereto and Fleet National Bank, as administrative agent under the Credit Agreement dated August 25, 2003 (previously filed as Exhibit 10.4 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)

Exhibit Number	Description
10.6†	Amended and Restated Affiliate Subordination Agreement, dated as of July 14, 2004, by and among Austin Ventures III-A, L.P., Austin Ventures III-B, L.P., Austin Ventures V, L.P., Austin Ventures V Affiliates Fund, L.P., Capital Resource Lenders II, L.P., ABRY Partners IV, L.P., ABRY Investment Partnership, L.P., New York Life Capital Partners II, L.P., PPM America Private Equity Fund LP, The Northwestern Mutual Life Insurance Company, Hull Family Limited Partnership, James Hull, Robert Sherman, Michael Gregory, Michael Meyers and Stephen Hedrick, as subordinated creditors, and Fleet National Bank, as secured party for the lenders from time to time party to the Credit Agreement dated August 25, 2003
10.7	Intercreditor and Subordination Agreement, dated as of August 25, 2003, by and among Monitronics International, Inc., The Northwestern Mutual Life Insurance Company and The Bank of New York Trust Company of Florida, N.A. (previously filed as Exhibit 10.6 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
10.8	Intercreditor and Subordination Agreement, dated as of August 25, 2003 by and among Monitronics International, Inc., Fleet National Bank, as administrative agent for the lenders from time to time party to the Credit Agreement, and The Northwestern Mutual Life Insurance Company (previously filed as Exhibit 10.7 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
10.9	Pledge Agreement, dated as of August 25, 2003, by and between The Northwestern Mutual Life Insurance Company, as pledgor, and Fleet National Bank, as administrative agent for the lenders from time to time party to the Credit Agreement dated August 25, 2003 (previously filed as Exhibit 10.8 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
10.10†	Amended and Restated Pledge Agreement, dated as of July 14, 2004, by and among Austin Ventures III-A, L.P., Austin Ventures III-B, L.P., Austin Ventures V, L.P., Austin Ventures V Affiliates Fund, L.P., Capital Resource Lenders II, L.P., ABRY Partners IV, L.P., ABRY Investment Partnership, L.P., New York Life Capital Partners II, L.P., PPM America Private Equity Fund LP, Hull Family Limited Partnership, James Hull, Robert Sherman, Michael Gregory, Michael Meyers, and Stephen Hedrick, as pledgors, and Fleet National Bank, as administrative agent for the lenders from time to time party to the Credit Agreement dated August 25, 2003
10.11	Warrant Agreement, dated November 10, 1994, by and between AV Alarm, Inc. (now known as Monitronics International, Inc.) and Heller Financial, Inc. (previously filed as Exhibit 10.10 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
10.12	First Amendment to Warrant Agreement, dated August 12, 1998, by and between Monitronics International, Inc. and Heller Financial, Inc. (previously filed as Exhibit 10.11 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
10.13	Affiliate Registration Agreement, dated October 21, 1994, by and among AV Alarm, Inc. (now known as Monitronics International, Inc.) and James R. Hull (previously filed as Exhibit 10.14 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
10.14	Amendment to Affiliate Registration Agreement, dated November 10, 1994, by and among AV Alarm, Inc. (now known as Monitronics International, Inc.) and James R. Hull, as shareholder, and Austin Ventures III-A, L.P. and Austin Ventures III-B, L.P., as purchasers (previously filed as Exhibit 10.15 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
10.15†	Fifth Amended and Restated Registration Agreement, dated July 14, 2004, by and among Monitronics International, Inc., and Austin Ventures III-A, L.P., Austin Ventures III-B, L.P., Austin Ventures V, L.P., Austin Ventures V Affiliates Fund, L.P., Capital Resource Lenders II, L.P., ABRY Partners IV, L.P., ABRY Investment Partnership, L.P., New York Life Capital Partners II, L.P., PPM America Private Equity Fund, LP and The Northwestern Mutual Life Insurance Company, as purchasers

Exhibit Number	Description
10.16†	Fifth Amended and Restated Shareholders Agreement, dated July 14, 2004, by and among Monitronics International, Inc. and Austin Ventures III-A, L.P., Austin Ventures III-B, L.P., Austin Ventures V, L.P., Austin Ventures V Affiliates Fund, L.P., Capital Resource Lenders II, L.P., ABRY Partners IV, L.P., ABRY Investment Partnership, L.P., New York Life Capital Partners II, L.P., PPM America Private Equity Fund LP, The Northwestern Mutual Life Insurance Company, as purchasers, Hull Family Limited Partnership, L.P., Robert N. Sherman, Michael Meyers, Stephen Hedrick, and Michael Gregory, as common shareholders
10.17	Subordinated Note and Warrant Purchase Agreement, dated January 18, 2002, by and between Monitronics International, Inc. and The Northwestern Mutual Life Insurance Company (previously filed as Exhibit 10.30 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
10.18	First Amendment to Subordinated Note and Warrant Purchase Agreement, dated August 25, 2003, by and between Monitronics International, Inc. and The Northwestern Mutual Life Insurance Company (previously filed as Exhibit 10.31 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
10.19†	Second Amendment to Subordinated Note and Warrant Purchase Agreement, dated July 14, 2004, by and between Monitronics International, Inc. and The Northwestern Mutual Life Insurance Company
10.20	Employment Agreement, effective as of October 21, 1994, by and between AV Alarm, Inc. (now known as Monitronics International, Inc.) and James R. Hull (previously filed as Exhibit 10.33 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
10.21	Agreement, dated as of August 18, 2003, by and between James R. Hull and Monitronics International, Inc. (previously filed as Exhibit 10.34 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
10.22	Employment Agreement, effective as of October 21, 1994, by and between AV Alarm, Inc. (now known as Monitronics International, Inc.) and Robert N. Sherman (previously filed as Exhibit 10.35 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
10.23	Employment Agreement, effective as of February 1, 1995, by and between AV Alarm, Inc. (now known as Monitronics International, Inc.) and Michael D. Gregory (previously filed as Exhibit 10.36 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
10.24	Form of Indemnification Agreement by and between Monitronics International, Inc. and each of James R. Hull, Blaine F. Wesner, Kenneth P. DeAngelis, Peter S. Macdonald, Stephen M. Jenks, John Dirvin and Jay M. Grossman, Erik Brooks, Royce Yudkoff and Brent Stone (previously filed as Exhibit 10.37 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
10.25	Form of Indemnification Agreement by and between Monitronics International, Inc. and each of Michael R. Meyers, Robert N. Sherman, Stephen M. Hedrick, Michael D. Gregory, Barry P. Johnson and Rick L. Hudson (previously filed as Exhibit 10.38 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
10.26	Commercial Lease Agreement, dated April 24, 2000, by and between Monitronics International, Inc. and Valley View Tech, Inc. (previously filed as Exhibit 10.39 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
10.27	Commercial Lease Agreement, dated June 22, 1998, by and between Monitronics International, Inc. and Valley View Tech, Inc. (previously filed as Exhibit 10.40 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)

Exhibit Number	Description
10.28	First Amendment to Commercial Lease Agreement, dated April 24, 2000, by and between Monitronics International, Inc. and Valley View Tech, Inc. (previously filed as Exhibit 10.41 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
10.29	Second Amendment to Commercial Lease Agreement, dated September 27, 2001, by and between Monitronics International, Inc. and Valley View Tech, Inc. (previously filed as Exhibit 10.42 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
10.30	Commercial Lease Agreement, dated March 18, 1999, by and between Monitronics International, Inc. and Valley View Tech, Inc. (previously filed as Exhibit 10.43 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
10.31	First Amendment of Lease, dated April 24, 2000, by and between Monitronics International, Inc. and Valley View Tech, Inc. (previously filed as Exhibit 10.44 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
10.32	Commercial Lease Agreement, dated December 9, 1991, by and between My Alarm, Inc. (now known as Monitronics International, Inc.) and TDC Dallas Partners No. 2, Ltd. (previously filed as Exhibit 10.45 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
10.33	First Amendment of Lease, dated February 17, 1997, by and between Monitronics International, Inc. and TDC Dallas Partners No. 2, Ltd. (previously filed as Exhibit 10.46 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
10.34	Second Amendment of Lease, dated September 17, 1997, by and between Monitronics International, Inc. and TDC Dallas Partners No. 2, Ltd. (previously filed as Exhibit 10.47 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
10.35	Third Amendment of Lease, dated August 31, 2001, by and between Monitronics International, Inc. and MRP/VV, L.P. (previously filed as Exhibit 10.48 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
10.36	1999 Stock Option Plan of Monitronics International, Inc. (previously filed as Exhibit 10.49 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
10.37	2001 Stock Option Plan of Monitronics International, Inc. (previously filed as Exhibit 10.50 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
10.38	Employment Agreement, effective as of September 1, 2003, by and between Monitronics International, Inc. and Michael R. Meyers (previously filed as Exhibit 10.51 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
10.39	Lease Agreement, dated May 3, 2004, by and between Monitronics International, Inc. and AGF Valley View II, Ltd. (previously filed as Exhibit 10.52 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
10.40†	Stock Purchase Agreement, dated July 14, 2004, among Monitronics International, Inc., Windward Capital Partners II, L.P., Windward Capital LP II, LLC, New York Life Capital Partners II, L.P. and PPM America Private Equity Fund LP
12.1	Computation of ratio of earnings to fixed charges (previously filed as Exhibit 12.1 to Amendment No. 2 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)

Exhibit Number	Description
12.2	Computation of pro forma ratio of earnings to fixed charges (previously filed as Exhibit 12.2 to Amendment No. 2 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
23.1†	Consent of Ernst & Young LLP
23.2	Consent of Vinson & Elkins L.L.P. (set forth in Exhibit 5.1 hereof)
24.1	Power of Attorney for James R. Hull, Michael R. Meyers, Jay M. Grossman and Blaine F. Wesner (previously filed and set forth in signature page of the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
24.2†	Power of Attorney for Erik Brooks
24.3†	Power of Attorney for Roger Yudkoff
24.4†	Power of Attorney for Brent Stone
25.1	Form T-1 of The Bank of New York Trust Company of Florida, N.A. (previously filed as Exhibit 25.1 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated by reference)
99.1	Form of Letter of Transmittal for 11 3/4% Senior Subordinated Notes due 2010 (previously filed as Exhibit 99.1 to Amendment No. 2 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
99.2	Form of Notice of Guaranteed Delivery of 11 3/4% Senior Subordinated Notes due 2010 (previously filed as Exhibit 99.2 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
99.3	Form of Letter to Registered Holders and DTC Participants (previously filed as Exhibit 99.3 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)
99.4	Form of Letter to Clients (previously filed as Exhibit 99.4 to the registrant’s Registration Statement on Form S-4 (File No. 333-110025) and incorporated herein by reference)

† Filed herewith.

EX-2.1

Exhibit 2.1

RECAPITALIZATION AGREEMENT

This Recapitalization Agreement (this “Agreement”), is entered into as of July 14, 2004, by and among Monitronics International, Inc., a Texas corporation (the “Company”), the holders of Preferred Stock listed on the Schedule of Preferred Holders attached hereto (the “Preferred Holders”), the holders of Class A Common Warrants (“Warrants”) listed on the Schedule of Warrant Holders attached hereto (the “Warrant Holders”), the holders of the Company’s Class A Common Stock, $0.01 par value (“Class A Common Stock”), listed on the Schedule of Common Holders attached hereto (the “Common Holders”), New York Life Capital Partners II, L.P., a Delaware limited partnership (“NY Life”), and PPM America Private Equity Fund LP, a Delaware limited partnership (“PPM” and together with the Preferred Holders, Warrant Holders, Common Holders and NY Life, the “Shareholders”).

RECITALS

A. Each Preferred Holder owns the number of shares of the Company’s Series A Preferred Stock, $0.01 par value (“Series A Preferred”), Series B Preferred Stock, $0.01 par value (“Series B Preferred”), Series C Preferred Stock, $0.01 par value (“Series C Preferred”), Series C-1 Preferred Stock, $0.01 par value (“Series C-1 Preferred”), and Series D-1 Preferred Stock, $0.01 par value (“Series D-1 Preferred”), set forth opposite its name on Exhibit D hereto.

B. Each Warrant Holder owns Warrants to purchase the number of shares of Class A Common Stock set forth opposite its name on Exhibit D hereto.

C. The parties hereto desire to enter into a series of transactions (the “Recapitalization”) pursuant to which:

(i) the Company will amend and restate its Articles of Incorporation (a) to eliminate its Series A Preferred, Series B Preferred, Series C Preferred, Series C-1 Preferred, Series D-1 Preferred and Series D-2 Preferred Stock, $0.01 par value (“Series D-2 Preferred”) (collectively, the Series A Preferred, Series B Preferred, Series C Preferred, Series C-1 Preferred, Series D-1 Preferred and Series D-2 Preferred are hereinafter referred to as the “Preferred Stock”), and (b) establish a new Series A Preferred Stock, $0.01 par value (the “New Series A Preferred”);

(ii) each of ABRY Partners IV, L.P. (“ABRY L.P.”) and ABRY Investment Partnership, L.P. (“ABRY Investment”) will exchange the Series D-1 Preferred Stock held by it for shares of Class A Common Stock;

(iii) each of Austin Ventures III-A, L.P. and Austin Ventures III-B, L.P. will exchange the Series A Preferred and Class A Common Stock held by it for shares of New Series A Preferred;

(iv) each of Austin Ventures V, L.P. and Austin Ventures V Affiliates Fund, L.P. (Austin Ventures III-A, L.P., Austin Ventures III-B, L.P., Austin Ventures V, L.P., and Austin Ventures V Affiliates Fund, L.P. being collectively referred to herein as the “AV Parties”) will exchange the Series B Preferred and Warrants held by it for shares of New Series A Preferred;

(v) Capital Resource Lenders II, L.P. (“Capital Resource”) will exchange the Series B Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock, Series D-1 Preferred Stock and Warrants held by it for shares of Class A Common Stock;

(vi) Windward Capital LP II, LLC, a Delaware limited liability company (“Windward LLC”), will exchange 69,162 shares of the Series C Preferred held by it and 12,338 shares of the Series C-1 Preferred held by it for an aggregate of 432,333 shares of Class A Common Stock (the “Windward LLC Common Shares”) and $290,882.50 in cash (the “Windward LLC Cash Amount”);

(vii) Windward Capital Partners II, L.P., a Delaware limited partnership (“Windward LP”), will exchange 1,264,031 shares of the Series C Preferred held by it and 225,492 shares of the Series C-1 Preferred held by it for an aggregate of 7,901,000 shares of Class A Common Stock (the “Windward LP Common Shares”) and $5,319,106.90 in cash (the “Windward LP Cash Amount”);

(viii) immediately following its receipt of the Windward LLC Common Shares, Windward LLC will sell, assign, transfer and convey the Windward LLC Common Shares to NY Life and PPM pursuant to the Stock Purchase Agreement in substantially the form attached hereto as Exhibit A (the “Stock Purchase Agreement”); and

(ix) immediately following its receipt of the Windward LP Common Shares, Windward LP will sell, assign, transfer and convey the Windward LP Common Shares to NY Life and PPM pursuant to the Stock Purchase Agreement (such transactions, together with the transactions set forth in paragraph C(viii) above, the “Share Purchase”).

D. In connection with the Recapitalization, the Company and the Shareholders desire to amend and restate the Fourth Amended and Restated Shareholders Agreement, dated January 18, 2002, by and among the Company and the Company’s security holders identified therein (the “Old Shareholders Agreement”) with the Fifth Amended and Restated Shareholders Agreement among the Company and the security holders identified therein, in substantially the form attached hereto as Exhibit B (the “Restated Shareholders Agreement”).

E. In connection with the Recapitalization, the Company and the Shareholders desire to amend and restate the Fourth Amended and Restated Registration Agreement, dated January 18, 2002, by and among the Company and the security holders identified therein (the “Old Registration Agreement”) with the Fifth Amended and Restated Registration Agreement among the Company and the security holders identified therein, in substantially the form attached hereto as Exhibit C (the “Restated Registration Agreement”).

F. In connection with the Recapitalization, the Company and the Shareholders desire to reconstitute the Board of Directors of the Company (the “Board”) and certain Committees of the Board.

2

NOW, THEREFORE, in consideration of these premises and other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

1. Capitalization.

The Company represents and warrants to the Shareholders that the capitalization of the Company immediately prior to the Closing (as hereinafter defined) is as set forth on Exhibit D hereto. The Company represents and warrants to the Shareholders that the capitalization of the Company immediately after the Closing shall be as set forth on Exhibit E hereto.

2. The Recapitalization.

The Company and the Shareholders, as applicable, hereby agree to take all of the following actions in connection with the Recapitalization, subject to the terms and conditions of this Agreement and in reliance on the representations and warranties set forth in this Agreement. Unless otherwise stated in this Section 2 or Section 3, the Recapitalization Documents (as hereinafter defined) will all be deemed to have been executed simultaneously at the Closing, and all of the transactions contemplated by the Recapitalization Documents shall be deemed to have happened simultaneously at the Closing.

(a) Amended and Restated Articles of Incorporation. Each Shareholder and the Company hereby agree that it is in the best interest of the Company to amend and restate the Company’s Articles of Incorporation, and each Shareholder will take all actions, whether in his or its capacity as a shareholder, officer or director of the Company, necessary to adopt, prior to the Closing, amended and restated Articles of Incorporation, substantially in the form attached hereto as Exhibit F (the “Amended and Restated Articles of Incorporation”).

(b) Exchange of Class A Common Stock. At the Closing, Austin Ventures III-A, L.P. and Austin Ventures III-B, L.P. shall transfer to the Company good and valid title to all of the shares of Class A Common Stock held by each of them, and the Company shall issue shares of the New Series A Preferred to each of them at the Closing such that when added to the shares of New Series A Preferred issued to them pursuant to Section 2(c)(i), they shall hold immediately after the Closing the number of shares of New Series A Preferred in the amount set forth opposite each of their names on Exhibit E hereto.

(c) Exchange of Preferred Stock.

(i) At the Closing, each Preferred Holder (other than Windward LP and Windward LLC) shall transfer to the Company good and valid title to all of the shares of Preferred Stock held by such Preferred Holder, and the Company shall issue shares of Class A Common Stock or New Series A Preferred to such Preferred Holder at the Closing such that immediately after the Closing, such Preferred Holder holds the number of shares of Class A Common Stock or New Series A Preferred in the amount set forth opposite such Preferred Holder’s name on Exhibit E hereto.

(ii) At the Closing, each of Windward LP and Windward LLC shall transfer to the Company good and valid title to all of the shares of Series C Preferred and Series C-1 Preferred Stock held by it, and the Company shall (A) issue to Windward LLC and Windward LP the Windward LLC Common Shares and the Windward LP Common Shares, respectively, and (B) pay to Windward LLC and Windward LP the Windward LLC Cash Amount and the Windward LP Cash Amount, respectively.

(d) Stock Purchase Agreement. At the Closing, the Company, Windward LP, Windward LLC, NY Life and PPM shall (i) execute and deliver the Stock Purchase Agreement,

3

providing for the Share Purchase and (ii) subject to the terms of the Stock Purchase Agreement, including the conditions precedent to the obligations of the parties thereto, take all actions necessary to effect the Share Purchase as contemplated by the Stock Purchase Agreement (except those actions that cannot by their terms be satisfied prior to the Share Purchase).

(e) Exchange of Warrants. At the Closing, each Warrant Holder (other than The Northwestern Mutual Life Insurance Company (“Northwestern”)) shall transfer to the Company good and valid title to all of the Warrants held by such Warrant Holder, and the Company shall issue shares of Class A Common Stock or New Series A Preferred to such Warrant Holder at the Closing such that when added to the shares of Class A Common Stock or New Series A Preferred issued to them pursuant to Section 2(c)(i), immediately after the Closing, the Warrant Holder holds the number of shares of Class A Common Stock or New Series A Preferred in the amount set forth opposite such Warrant Holder’s name on Exhibit E hereto.

(f) Recapitalization Documents. This Agreement, the Amended and Restated Articles of Incorporation, the Stock Purchase Agreement, the Restated Shareholders Agreement and the Restated Registration Agreement are collectively referred to herein as the “Recapitalization Documents.”

(g) Reconstitution of the Board. At the Closing, the Board shall be reconstituted, so that the Board shall consist of the following individuals: Erik Brooks, Jay Grossman, James R. Hull, Brent Stone, Blaine Wesner and Royce Yudkoff as provided in the Restated Shareholders Agreement.

(h) Post-Closing Adjustment.

(i) The parties hereto have agreed to the consideration to be received by each Preferred Holder (other than Windward LP and Windward LLC) in exchange for the Preferred Stock and Class A Common Stock held by such holders immediately prior to the effectiveness hereof based upon an assumed price per share of Class A Common Stock on a fully-diluted as if converted basis of $6.00 per share (the “Assumed Price Per Share”). In order to maintain the agreed percentage ownership of the Company’s equity, the Company shall issue additional shares of Class A Common Stock and/or Series A Preferred Stock to the extent necessary and in the manner described below upon the occurrence of a Tax Valuation Event (as defined herein). The number of additional shares of Class A Common Stock and/or Series A Preferred Stock, as applicable, to be issued to each shareholder entitled to receive such additional shares of Class A Common Stock and/or Series A Preferred Stock, as applicable, shall be the number of shares of Class A Common Stock or Series A Preferred Stock, as applicable, that when added to the number of shares of Class A Common Stock or Series A Preferred Stock, as applicable, held by such shareholder on the date hereof as set forth in the shaded column on the attached spreadsheet labeled Exhibit G, shall result in such shareholder holding the number of shares of Class A Common Stock or Series A Preferred Stock, as applicable, set forth opposite such shareholder’s name in the shaded column on the spreadsheet attached as Exhibit H which contains the appropriate Revised Price Per Share (as defined below) resulting from the Tax Valuation Event. In order to determine the Revised Price Per Share, the Assumed Price Per Share shall be adjusted by subtracting from such Assumed Price Per Share an amount equal to the product of (x) $0.70 multiplied by (y) the difference between (i) the number of years greater than ten (10) that the Internal Revenue Service successfully determines (whether through adjudication or settlement

4

with the Company) to be the correct amortizable life of the Company’s subscriber accounts and (ii) ten (10) (such resulting price per share, the “Revised Price Per Share”). In no event whatsoever will the Revised Price Per Share be less than $2.50 per share. Notwithstanding anything to the contrary above, if the Revised Price Per Share is an amount that is between two Revised Price Per Share amounts listed on Exhibit H, the number of shares of Class A Common Stock and/or Series A Preferred Stock, as applicable, to be issued to each shareholder entitled to receive additional shares of Class A Common Stock and/or Series A Preferred Stock, as applicable, shall be adjusted on a linear basis to equal an amount between the number of shares of Class A Common Stock or Series A Preferred Stock, as applicable, that would be issued to such shareholder on the closest two Revised Per Share Amounts listed on Exhibit H. In the event that a holder of Series A Preferred Stock shall have converted such shares into shares of Class A Common Stock prior to the occurrence of a Tax Valuation Event then, upon occurrence of a Tax Valuation Event, such holder shall be issued shares of Class A Common Stock in lieu of shares of Series A Preferred Stock for such shares of Series A Preferred Stock that have been previously converted.

(ii) “Tax Valuation Event” means an audit of the Company or its Subsidiaries (as defined in the Amended and Restated Articles of Incorporation) conducted by the Internal Revenue Service which results in (A) a final determination by the Internal Revenue Service that the Company or its Subsidiaries have improperly amortized the life of subscriber accounts over a 10 year period and should have amortized the life of subscriber accounts over a period greater than 10 years and (B) requirements that the Company (1) restate its tax returns to increase the length of time over which it amortizes the life of subscriber accounts to a period greater than 10 years and (2) amortize the life of subscriber accounts on future tax returns over a period greater than 10 years; provided that the Company or such Subsidiary receives notification from the Internal Revenue Service of such audit within two years following the date hereof and subject to the provisions of Section 2(h)(iii) below.

(iii) The Company agrees to furnish to a representative of the AV Parties copies of all correspondence received from any Governmental Entity in connection with any audit, litigation or other proceedings relating to the tax returns of the Company or any of its Subsidiaries. The Company agrees to keep a representative of the AV Parties informed on a timely basis of all contacts and discussions with any Governmental Entity regarding any audit, litigation or other proceeding described in the foregoing sentence. The AV Parties shall have the right to consult with the Company regarding any determination, contest and or any assessment, notice of deficiency or other adjustment or proposed adjustment relating to or with respect to taxes or tax returns of the Company or any of its Subsidiaries. The Company shall use its reasonable best efforts to defend positions taken on tax returns and shall keep the AV Parties informed of the progress of any such proceedings. The rights of the AV Parties under this section shall terminate two years following the date of this Agreement; provided that the rights of the AV Parties under this section shall continue beyond such period with respect to any notification from the Internal Revenue Service received by the Company or any of its Subsidiaries within two years following the date of this Agreement.

3. The Closing.

The closing of the transactions contemplated by this Agreement (the “Closing”) shall be held at the offices of Vinson & Elkins L.L.P., 3700 Trammell Crow Center, 2001 Ross Avenue,

5

Dallas, Texas 75201, on the date hereof or such other date and location as the Company and the Shareholders may mutually agree (the date of such Closing, the “Closing Date”); provided that the transactions contemplated under Sections 2(a), (b), (c) and (e) hereof shall be deemed to have occurred immediately prior to the transactions contemplated under Section 2(d) hereof; provided, further, that the transactions contemplated under Sections 2(a), (b), (c) and (e) hereof shall in no event occur unless and until the full satisfaction of the transactions contemplated under Section 2(d). At the Closing:

(a) each Preferred Holder will deliver to the Company the certificates representing all of the Preferred Stock held by such Preferred Holder, free and clear of any lien, pledge or security interest, except for those imposed pursuant to the Credit Agreement, dated as of August 25, 2003, by and among the Company and the several banks and other lenders parties thereto (the “Credit Agreement”), together with separate stock powers duly endorsed in blank, and any other documents that in the reasonable judgment of the Company are necessary to the Company’s good and valid title to the Preferred Stock held by the Preferred Holder;

(b) each Warrant Holder (other than Northwestern) will deliver to the Company the certificates representing all of the Warrants held by each such Warrant Holder, free and clear of any lien, pledge or security interest, except for those imposed pursuant to the Credit Agreement, and any other documents that in the reasonable judgment of the Company are necessary to the Company’s good and valid title to the Warrant held by such Warrant Holder;

(c) each of Austin Ventures III-A, L.P. and Austin Ventures III-B, L.P. will deliver to the Company the certificates representing all of the Class A Common Stock held by it, free and clear of any lien, pledge or security interest, except for those imposed pursuant to the Credit Agreement, and any other documents that in the reasonable judgment of the Company are necessary to the Company’s good and valid title to such shares of Class A Common Stock;

(d) the Company will issue shares of Class A Common Stock or New Series A Preferred to each Preferred Holder (other than Windward LLC and Windward LP) and Warrant Holder (other than Northwestern) such that, immediately after the Closing, such Preferred Holder or Warrant Holder holds the number of shares of Class A Common Stock or New Series A Preferred in the amount set forth opposite each Shareholder’s name on Exhibit E;

(e) the Company shall (i) issue to (a) Windward LLC the Windward LLC Common Shares and (b) Windward LP the Windward LP Common Shares and (ii) pay to (a) Windward LLC the Windward LLC Cash Amount and (b) Windward LP the Windward LP Cash Amount, in each case, by wire transfer of immediately available funds pursuant to wire transfer instructions delivered to the Company;

(f) each of Windward LP and Windward LLC will sell, assign, transfer and convey the Windward LP Common Shares and the Windward LLC Common Shares, respectively, to NY Life and PPM in accordance with the terms of the Stock Purchase Agreement;

(g) each party will execute and deliver the Recapitalization Documents (other than this Agreement) to which such party is a signatory; and

6

(h) the parties will undertake any actions and deliver any documents necessary to effect the transactions contemplated by the Recapitalization Documents and the other transactions contemplated by this Agreement.

4. Shareholder’s Representations and Warranties.

Each Shareholder hereby represents and warrants, as to itself only and not with respect to any other Shareholder, to the Company and to each other Shareholder as follows:

(a) Organization. If the Shareholder is not an individual, such Shareholder has been duly organized and is validly existing as a corporation, limited partnership or limited liability company in good standing under the laws of the jurisdiction in which it is chartered or organized.

(b) Authorization; Enforcement. The Shareholder has all requisite power and authority to authorize, execute, deliver and perform this Agreement and the other Recapitalization Documents to which it is a party. The execution, delivery and performance by the Shareholder of this Agreement and the other Recapitalization Documents to which it is a party, and the consummation by the Shareholder of the transactions contemplated hereby and thereby, have been duly authorized by all necessary corporate, limited partnership or limited liability company action on the part of the Shareholder, and no further consent or authorization thereafter is presently required by the Shareholder. This Agreement and the other Recapitalization Documents to which the Shareholder is a party have been duly and validly executed and delivered by the Shareholder and, assuming the due authorization, execution and delivery by the other parties hereto, constitute the valid and binding obligations of the Shareholder, enforceable against the Shareholder in accordance with their respective terms, except to the extent that the enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws generally affecting creditors’ rights and by equitable principles regardless of whether enforcement is sought in equity or at law.

(c) No Conflicts. The execution and delivery of this Agreement and the other Recapitalization Documents to which it is a party by the Shareholder do not, and the performance by the Shareholder of its obligations hereunder and thereunder will not, constitute a violation of, conflict with or result in a default under the articles of incorporation, bylaws, limited liability company agreement, limited partnership agreement or similar organizational documents, as the case may be, of the Shareholder or any contract to which the Shareholder is a party or by which the Shareholder is bound or any judgment, decree or order applicable to the Shareholder.

(d) No Violations. Neither the execution and delivery of this Agreement nor the other Recapitalization Documents to which it is a party, nor the performance by the Shareholder of its obligations hereunder or thereunder, will violate in any material respect any provision of law applicable to the Shareholder.

(e) Consents; Approvals. Neither the execution, delivery or performance by the Shareholder of this Agreement or any other Recapitalization Document to which it is a party, nor the consummation by it of the obligations and transactions contemplated hereby or thereby, requires any consent or approval of, authorization by, exemption from, filing with or notice to any national, federal, state, municipal, local, territorial, foreign or other government or any

7

department, commission, board, bureau, agency, exchange, regulatory authority or instrumentality thereof, or any court, judicial, administrative or arbitral body or public or private tribunal (each, a “Governmental Entity”) or any other individual, corporation, partnership, joint venture, trust, unincorporated organization, limited liability company or partnership, or a government or any agency or political subdivision thereof (each, a “Person”), except with respect to each of ABRY LP and ABRY Investment any filings required under the Hart-Scott Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), and the expiration or termination of any waiting period in connection therewith, which have been duly made or obtained.

(f) Acquisition for Own Account. If the Shareholder is acquiring Class A Common Stock or New Series A Preferred as part of the Recapitalization, the Shareholder is acquiring the Class A Common Stock or New Series A Preferred for its own account, for investment and not with a view toward distribution in a manner which would violate the Securities Act; provided, however, that by making the representations herein, the Shareholder does not agree to hold any of the shares of Class A Common Stock or the New Series A Preferred for any minimum or other specific term and reserves the right to dispose of such shares at any time, subject to the transfer restrictions contained in the Restated Shareholders Agreement and in accordance with or pursuant to an effective registration statement under the Securities Act or in a transaction exempt from or not subject to the registration requirements of the Securities Act.

(g) Access to Information. If the Shareholder is acquiring Class A Common Stock or New Series A Preferred as part of the Recapitalization, the Shareholder acknowledges that it has reviewed and discussed the Company’s business and affairs with such officers of the Company and others as it has deemed appropriate or desirable in connection with the transactions contemplated by this Agreement. The Shareholder further acknowledges that it has requested, received and reviewed such information, undertaken such investigation and made such further inquiries of officers of the Company and others as it has deemed appropriate or desirable in connection with such transactions.

(h) Ability to Bear Economic Risk. If the Shareholder is acquiring Class A Common Stock or New Series A Preferred as part of the Recapitalization, the Shareholder understands that it must bear the economic risk of its investment for an indefinite period of time because neither the Class A Common Stock nor the New Series A Preferred are, and will not be, registered under the Securities Act or any applicable state securities laws, except as may be provided in the Restated Registration Agreement, and may not be resold unless subsequently registered under the Securities Act and such other laws or unless an exemption from such registration is available.

(i) Accredited Investor. If the Shareholder is acquiring Class A Common Stock or New Series A Preferred as part of the Recapitalization, the Shareholder represents that it has knowledge and experience in financial and business matters and that it is capable of evaluating the merits and risks of its investment in the Class A Common Stock or the New Series A Preferred. The Shareholder (other than ABRY Investment) further represents that it is an “accredited investor” as such term is defined in Rule 501 of Regulation D under the Securities Act with respect to the acquisition of the Class A Common Stock or the New Series A Preferred.

(j) Brokers. No Person has or will have, as a result of the transactions contemplated by this Agreement, any rights, interest or valid claim against or upon the Company or the

8

Shareholders for any commission, fee or other compensation as a finder or broker because of any written agreement made by the Shareholder to pay any such compensation.

(k) Legends. The Shareholder hereby acknowledges that each certificate representing the Class A Common Stock or New Series A Preferred and any other securities issued in respect of such shares upon any stock split, stock dividend, recapitalization, merger or similar event (unless no longer required in the written opinion of counsel, which opinion of counsel shall be reasonably satisfactory to the Company, it being agreed that Vinson & Elkins L.L.P., Kirkland & Ellis LLP, Jenkens & Gilchrist, P.C., Testa, Hurwitz & Thibeault, LLP or Arnold & Porter LLP shall be satisfactory) shall bear a legend substantially in the following form:

THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD OR TRANSFERRED WITHOUT COMPLIANCE WITH THE REGISTRATION OR QUALIFICATION PROVISIONS OF APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR APPLICABLE EXEMPTIONS THEREFROM.

(l) Title to Securities. The Shareholder is the sole record and beneficial owner of, and has good and valid title to, the security or securities listed opposite its or his name on Exhibit D hereto, free and clear of any lien, pledge, security interest or any restriction on transfer, except for restrictions on transfer imposed by applicable securities laws, the Credit Agreement, the Old Shareholders Agreement and the Third Amended and Restated Co Sale Agreement, dated January 18, 2002, by and among the Company and the shareholders party thereto. Immediately prior to the Closing, the Shareholder will not hold, beneficially or of record, any securities of the Company other than the securities listed opposite its or his name on Exhibit D hereto. The Shareholder (other than Windward LLC and Windward LP in connection with the Stock Purchase Agreement) is not a party to any option, warrant, purchase right or other contract or commitment that (i) will not be terminated at the Closing and (ii) requires the Shareholder to sell, transfer or otherwise dispose of any capital stock of the Company.

5. Company Representations and Warranties.

The Company hereby represents and warrants to each Shareholder as follows:

(a) Organization. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Texas and has all requisite corporate power and authority for the ownership and operation of its properties and for the carrying on of its business as now conducted and as now proposed to be conducted. The Company is duly licensed or qualified and in good standing as a foreign corporation authorized to do business in all jurisdictions wherein the character of the property owned or leased, or the nature of the activities conducted, by it makes such licensing or qualification necessary, except where the failure to be so licensed or qualified, either individually or in the aggregate, would not have (or be reasonably likely to have) a material adverse effect on the business, assets, liabilities, condition (financial or otherwise) or results of operations of the Company or the Company’s ability to perform its obligations under this Agreement or the other Recapitalization Documents to which it is a party.

9

The Company does not own, directly or indirectly, any capital stock or other equity or ownership or proprietary interest in any Person.

(b) Authorization; Enforcement. The Company has all requisite power and authority to authorize, execute, deliver and perform this Agreement and the other Recapitalization Documents to which it is a party. The execution, delivery and performance by the Company of this Agreement and the other Recapitalization Documents to which it is a party, and the consummation by the Company of the transactions contemplated hereby and thereby, have been duly authorized by all necessary corporate action on the part of the Company and no further consent or authorization therefore is presently required by the Company. This Agreement and the Recapitalization Documents to which it is a party have been duly and validly executed and delivered by the Company and, assuming the due authorization, execution and delivery by the other parties hereto, constitute the valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, except to the extent that the enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws generally affecting creditors’ rights and by equitable principles regardless of whether enforcement is sought in equity or at law.

(c) Duly Authorized, Fully Paid and Non-assessable. The Class A Common Stock and the New Series A Preferred have been duly authorized and, upon issuance in accordance with the terms of this Agreement and the Amended and Restated Articles of Incorporation, all such Class A Common Stock and the New Series A Preferred will be duly authorized, validly issued, fully paid and non-assessable, and free from all taxes, liens, claims and other encumbrances except for those imposed by the Credit Agreement, and will not be subject to preemptive rights or other similar rights of shareholders of the Company and will not impose personal liability upon the holders thereof.

(d) No Conflicts. The execution and delivery of this Agreement and the other Recapitalization Documents to which it is a party by the Company does not, and the performance by the Company of its obligations hereunder and thereunder will not, constitute a violation of, conflict with or result in a default under the Amended and Restated Articles of Incorporation, the bylaws of the Company or any contract to which the Company is a party or by which the Company is bound or any judgment, decree or order applicable to the Company.

(e) No Violations. Neither the execution and delivery of this Agreement or the other Recapitalization Documents to which it is a party nor the performance by the Company of its obligations hereunder or thereunder will violate in any material respect any provision of law applicable to the Company.

(f) Consents; Approvals. Neither the execution, delivery or performance by the Company of this Agreement or any other Recapitalization Document to which it is a party, nor the consummation by it of the obligations and transactions contemplated hereby or thereby, requires any consent or approval of, authorization by, exemption from, filing with or notice to any Governmental Entity or any other Person other than (i) the filing of the Amended and Restated Articles of Incorporation with the Secretary of State of the State of Texas, (ii) the consent of the lenders required under the Credit Agreement, (iii) the consent of Northwestern under the Subordinated Note and Warrant Purchase Agreement, dated January 18, 2002, as amended (the “Northwestern Agreement”), and (iv) any filings required under the HSR Act and

10

the expiration or termination of any waiting period in connection therewith, all of which have been duly made or obtained.

(g) Brokers. There is no broker, investment banker, financial advisor, finder or other Person which has been retained by or is authorized to act on behalf of the Company who might be entitled to any fee or commission for which the Company or the Shareholders will be liable in connection with the execution, delivery or performance by the Company of this Agreement or any of the other Recapitalization Documents to which it is a party.

(h) No Other Conversion, Preemptive Rights. After the Closing Date (as hereinafter defined), except for (i) the warrants issued to Heller Financial, Inc., a Delaware corporation (“Heller”), pursuant to the Warrant Agreement, dated as of November 10, 1994, by and between the Company and Heller, as amended, (ii) the warrants issued to Northwestern pursuant to the Northwestern Agreement, (iii) the New Series A Preferred, to be issued in the Recapitalization and (iv) options to purchase 92,000 shares of Class A Common Stock issued pursuant to the Company’s 1999 Stock Option Plan, there will be no securities outstanding that are convertible or exchangeable for the Company’s Common Stock, and there will be no other options, warrants, conversion privileges or other rights (including preemptive rights and rights of first refusal or similar rights other than as described in the Restated Shareholders Agreement) outstanding to purchase any of the authorized but unissued stock of the Company.

6. Further Assurances.

The Company and each Shareholder shall take or cause to be taken all such actions as may be necessary or reasonably desirable in order expeditiously to consummate the transactions contemplated by this Agreement, the other Recapitalization Documents to which they are a party and any other agreements necessary to consummate the Recapitalization, including, without limitation, executing, acknowledging and delivering consents, assignments, waivers and other documents or instruments; voting in favor of such transaction; furnishing information and copies of documents; filing applications, reports, returns, filings and other documents or instruments with Governmental Entities; and otherwise cooperating with the Company.

7. Certain Conditions.

(a) The obligation of the Company to consummate the Recapitalization shall be subject to the satisfaction or waiver by the Company of the following conditions:

(i) the representations and warranties made by each Shareholder in Section 4 hereof shall be true and correct in all material respects at the Closing Date as if made on the Closing Date and each Shareholder shall have performed in all material respects all obligations and conditions required herein or by any other Recapitalization Document to have been performed or complied with by it on or prior to the Closing;

(ii) each of the Recapitalization Documents shall have been executed and delivered by each other party thereto;

(iii) the Company shall have filed the Amended and Restated Articles of Incorporation with the Secretary of State of the State of Texas, which Amended and Restated Articles of Incorporation shall be in full force and effect on the Closing Date;

11

(iv) no action, suit, proceeding or investigation by any Governmental Entity shall be pending or, so far as is known to the Company or the Shareholders, be threatened, and no Governmental Entity shall have enacted an order or injunction which is in effect, which, in the case of such action, suit, proceeding, investigation, order or injunction, challenges the transactions contemplated by this Agreement or any other Recapitalization Document or seeks to restrain or prevent the consummation of the transactions contemplated hereunder or thereunder; and

(v) the Company shall have obtained any and all consents (including the consent of the lenders required pursuant to the Credit Agreement and of Northwestern pursuant to the Northwestern Agreement), permits and waivers necessary or appropriate for consummation of the transactions contemplated by this Agreement and the other Recapitalization Documents.

(b) The obligation of each Shareholder to consummate the Recapitalization shall be subject to the satisfaction or waiver by such Shareholder of the following conditions:

(i) the representations and warranties made by each other Shareholder or the Company in Section 4 or Section 5 hereof shall be true and correct in all material respects at the Closing Date, as if made on the Closing Date, and the Company and each other Shareholder shall have performed in all material respects all obligations and conditions required herein or by any other Recapitalization Document to have been performed or complied with by it on or prior to the Closing under this Agreement;

(ii) each of the Recapitalization Documents shall have been executed and delivered by each party thereto other than such Shareholder;

(iii) the Company shall have filed the Amended and Restated Articles of Incorporation with the Secretary of State of the State of Texas, which Amended and Restated Articles of Incorporation shall be in full force and effect on the Closing Date;

(iv) no action, suit, proceeding or investigation by any Governmental Entity shall be pending or, so far as is known to the Company or the Shareholders, be threatened, and no Governmental Entity shall have enacted an order or injunction which is in effect, which, in the case of such action, suit, proceeding, investigation, order or injunction, challenges the transactions contemplated by this Agreement or any other Recapitalization Document or seeks to restrain or prevent the consummation of the transactions contemplated hereunder or thereunder;

(v) the Company shall have obtained any and all consents (including the consent of the lenders required pursuant to the Credit Agreement and of Northwestern pursuant to the Northwestern Agreement), permits and waivers necessary or appropriate for consummation of the transactions contemplated by this Agreement and the other Recapitalization Documents;

(vi) each of the conditions set forth in Section 6 of the Stock Purchase Agreement (other than the conditions set forth in Section 6(a)(vii) and Section 6(b)(ix)) shall have been satisfied; and

12

(vii) each of Windward LP and Windward LLC shall have received federal funds reference numbers or other confirmation satisfactory to it evidencing that the purchase price to be received by it from PPM and NY Life for the Share Purchase as provided in the Stock Purchase Agreement have been sent by wire transfer of immediately available funds.

8. Specific Performance.

The parties hereto acknowledge and agree that in the event of any breach of this Agreement, the other parties hereto would be irreparably and immediately harmed and could not be made whole by monetary damages. It is accordingly agreed that, in addition to any other remedy to which the parties hereto may be entitled at law or in equity, each of the parties hereto shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement and/or to compel specific performance of this Agreement in any action.

9. Expenses.

The Company will pay all fees and expenses of the parties hereto incurred in connection with the negotiation, preparation and execution of this Agreement and the other Recapitalization Documents and in connection with the consummation of the transactions contemplated hereby and thereby, including, without limitation, legal fees.

10. Miscellaneous.

(a) Entire Agreement. This Agreement, including all exhibits and schedules hereto, and the other Recapitalization Documents constitute the entire agreement and supersede all prior agreements and understandings, whether oral or written, between the parties hereto with respect to the subject matter hereof and thereof.

(b) Representations and Warranties. None of the parties has made nor is making any representation, warranty, covenant or agreement, express or implied, other than the explicit representations, warranties, covenants and agreements set forth herein. No promise or inducement for this Agreement has been made to any party hereto except as set forth herein. This Agreement is being executed by each party freely and voluntarily, and without reliance upon any statement or representation by any other party, any of such other party’s affiliates or any of their attorneys or agents except as set forth herein. Each party acknowledges and agrees that it is legally competent to enter into this Agreement and accepts full responsibility therefor and has been represented by counsel in the course of the negotiation of this Agreement.

(c) Successors and Assigns; Assignment. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, successors and permitted assigns. This Agreement may not be assigned by the Company without the prior written consent of all Shareholders. This Agreement may not be assigned by any Shareholder without the prior written consent of the Company and all other Shareholders.

(d) Section Headings. Section headings contained in this Agreement are for convenience of reference only and shall not affect the meaning or interpretation of this Agreement.

13

(e) Counterparts. This Agreement may be executed in any number of counterparts, each of which shall, when executed, be deemed to be an original and all of which shall be deemed to be one and the same instrument.

(f) Governing Law. This agreement shall be governed by and construed and enforced in accordance with the laws of the state of Texas, without reference to the conflict of laws principles thereof.

(g) Notices. All notices, requests, demands and other communications provided for hereunder shall be in writing and mailed (by first class registered or certified mail, postage prepaid), telegraphed, sent by express overnight courier service or electronic facsimile transmission with a copy by mail, or delivered to the applicable party at the addresses indicated below:

If to the Company:

Monitronics International, Inc.

12801 Stemmons Freeway

Suite 821

Dallas, Texas 75234

Attention: James R. Hull

Facsimile No.: (972) 919-1985

(with copies to):

Vinson & Elkins L.L.P.

2001 Ross Avenue

Suite 3700

Dallas, Texas 75201

Attention: Christine A. Hathaway

Facsimile No.: (214) 999-7714

If to a Shareholder:

To the address of such Shareholder

specified on the signature pages attached hereto

or, as to each of the foregoing, at such other address as shall be designated by such Person in a written notice to the other party complying as to delivery with the terms of this Section. All such notices or requests, demands and other communications shall, when mailed, telegraphed or sent, respectively, be effective (i) two days after being deposited in the mail or (ii) one day after being delivered to the telegraph company, deposited with the express overnight courier service or sent by electronic facsimile transmission (with receipt confirmed), respectively, addressed as aforesaid.

(h) Waiver. Any waiver by any party of a breach of any provision of this Agreement shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Agreement. The failure of a party to insist upon strict

14

adherence to any term of this Agreement or one or more sections shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement.

(i) Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated.

(j) Tax-free Reorganization. The Company and each Shareholder agree to regard the exchange of the Preferred Shares, the Class A Common Stock and the Warrants for the New Series A Preferred and Class A Common Stock of the Company as a reorganization under Section 368(a)(1)(E) of the Internal Revenue Code of 1986, as amended, for reporting and other positions, including tax reporting.

[The remainder of this page is intentionally left blank.]

15

IN WITNESS WHEREOF, the parties hereto have hereunto set their hands as of the date first above written.

		MONITRONICS INTERNATIONAL, INC.
		By:	/s/ James R. Hull
			James R. Hull President
Address:	12801 Stemmons Freeway Suite 821	HULL FAMILY LIMITED PARTNERSHIP, L.P.
	Dallas, Texas 75234	By:	James R. Hull Management Trust, its General Partner
		By:	/s/ James R. Hull
			James R. Hull Trustee
Address:	12801 Stemmons Freeway	/s/ Robert N. Sherman
	Suite 821 Dallas, Texas 75234	Robert N. Sherman
Address:	12801 Stemmons Freeway	/s/ Michael Meyers
	Suite 821 Dallas, Texas 75234	Michael Meyers
Address:	12801 Stemmons Freeway	/s/ Stephen Hedrick
	Suite 821 Dallas, Texas 75234	Stephen Hedrick
Address:	12801 Stemmons Freeway	/s/ Michael Gregory
	Suite 821 Dallas, Texas 75234	Michael Gregory

S-1

Address:	300 West 6th Street Suite 2300	AUSTIN VENTURES III-A, L.P.
	Austin, Texas 78701	By:	AV Partners III, L.P., its General Partner
		By:	/s/ Blaine F. Wesner
			Blaine F. Wesner Authorized Signatory
Address:	300 West 6th Street Suite 2300	AUSTIN VENTURES III-B, L.P.
	Austin, Texas 78701	By:	AV Partners III, L.P., its General Partner
		By:	/s/ Blaine F. Wesner
			Blaine F. Wesner Authorized Signatory
Address:	300 West 6th Street Suite 2300	AUSTIN VENTURES V, L.P.
	Austin, Texas 78701	By:	AV Partners V, L.P., its General Partner
		By:	/s/ Blaine F. Wesner
			Blaine F. Wesner General Partner
Address:	300 West 6th Street Suite 2300	AUSTIN VENTURES V AFFILIATES FUND, L.P.
	Austin, Texas 78701	By:	AV Partners V, L.P.,
			its General Partner
		By:	/s/ Blaine F. Wesner
			Blaine F. Wesner General Partner

S-2

Address:	85 Merrimac Street Suite 200	CAPITAL RESOURCE LENDERS II, L.P.
	Boston, Massachusetts 02114	By:	Capital Resource Partners II, L.P., its General Partner
		By:	/s/ Robert C. Ammerman
		Name:	Robert C. Ammerman
		Title:	General Partner
Address:	111 Huntington Avenue Boston, Massachusetts 02199	ABRY PARTNERS IV, L.P.
		By:	ABRY Capital Partners, L.P., its General Partner
			By:	ABRY Capital Partners, L.P., its General Partner
				By:	/s/ Jay M. Grossman
				Name:	Jay M. Grossman
				Title:
Address:	111 Huntington Avenue Boston, Massachusetts 02199	ABRY INVESTMENT PARTNERSHIP, L.P.
		By:	ABRY Investment GP, LLC, its General Partner
		By:	/s/ Jay M. Grossman
		Name:	Jay M. Grossman
		Title:
Address:	712 Fifth Avenue 21st Floor	WINDWARD CAPITAL PARTNERS II, L.P.
	New York, New York 10019	By:	Windward Capital GP II, LLC, its General Partner
		By:	/s/ Peter S. Macdonald
			Peter S. Macdonald
			Managing Member

S-3

Address:	712 Fifth Avenue 21st Floor	WINDWARD CAPITAL PARTNERS II, LLC
	New York, New York 10019	By:	/s/ Peter S. Macdonald
			Peter S. Macdonald
			Managing Member
Address:	720 East Wisconsin Avenue Milwaukee, Wisconsin 53202	THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
		By:	/s/ David A. Barras
		Name:	David A. Barras
		Title:	Its Authorized Representative
Address:	51 Madison Avenue Suite 3009 (30th Floor)	NEW YORK LIFE CAPITAL PARTNERS II, L.P.
	New York, New York 10010 Attn: John Schumacher	By:	NYLCAP Manager LLC, its Investment Manager
		By:	/s/ John E. Schumacher
		Name:	John E. Schumacher
		Title:	President and CEO
Address:	225 W. Wacker Drive Suite 1200	PPM AMERICA PRIVATE EQUITY FUND LP
	Chicago, Illinois 60606 Attn: Bruce Saewitz	By:	PPM America Capital Partners, LLC, its general partner
		By:	/s/ Bruce Saewitz
		Name:	Bruce Saewitz
		Title:	Senior Partner
		By:	/s/ Austin Krumpfes
		Name:	Austin Krumpfes
		Title:	Associate

S-4

SCHEDULE OF PREFERRED HOLDERS

Austin Ventures III-A, L.P.

Austin Ventures III-B, L.P.

Austin Ventures V, L.P.

Austin Ventures V Affiliates Fund, L.P.

Capital Resource Lenders II, L.P.

Windward Capital Partners II, L.P.

Windward Capital LP II, LLC

ABRY Partners IV, L.P.

ABRY Investment Partnership, L.P.

Schedule of Preferred Holders-1

SCHEDULE OF WARRANT HOLDERS

Austin Ventures V, L.P.

Austin Ventures V Affiliates Fund, L.P.

Capital Resource Lenders II, L.P.

The Northwestern Mutual Life Insurance Company

Schedule of Warrant Holders-1

SCHEDULE OF COMMON HOLDERS

Austin Ventures III-A, L.P.

Austin Ventures III-B, L.P.

Capital Resource Lenders II, L.P.

Hull Family Limited Partnership, L.P.

Robert N. Sherman

Michael Meyers

Stephen Hedrick

Michael Gregory

Schedule of Common Holders-1

EXHIBIT A

Form of Stock Purchase Agreement

(see attachment)

A-1

EXHIBIT B

Form of Restated Shareholders Agreement

(see attachment)

B-1

EXHIBIT C

Form of Restated Registration Agreement

(see attachment)

C-1

EXHIBIT D

Capitalization Prior to the Closing

Shareholder	Class of Shares	# of Shares	# of Fully Diluted Common Shares on an “As Converted” Basis	Fully Diluted Ownership Percentage
Austin Ventures III-A, L.P.	Series A Preferred	2,168,400	2,713,213	17.181	%
	Class A Common	33,344	33,344	0.211	%
Austin Ventures III-B, L.P.	Series A Preferred	1,831,600	2,291,792	14.513	%
	Class A Common	28,167	28,167	0.178	%
Austin Ventures V, L.P.	Series B Preferred	3,809,525	—	—
Austin Ventures V Affiliates Fund, L.P.	Series B Preferred	190,476	—	—
Capital Resource Lenders II, L.P.	Series B Preferred	1,000,000	—	—
	Series C Preferred	76,182	126,332	0.800	%
	Series C-1 Preferred	13,590	—	—
	Series D-1 Preferred	5,000	238,328	1.509	%
	Class A Common	688,625	688,625	4.361	%
Windward Capital Partners II, L.P.	Series C Preferred	1,264,031	2,096,116	13.274	%
	Series C-1 Preferred	225,492	—	—
Windward Capital LP II, LLC	Series C Preferred	69,162	114,690	0.726	%
	Series C-1 Preferred	12,338	—	—
ABRY Partners IV, L.P.	Series D-1 Preferred	64,959.90	3,096,356	19.608	%
ABRY Investment Partnership, L.P.	Series D-1 Preferred	40.10	1,912	0.012	%
Hull Family Limited Partnership	Class A Common	536,218	536,218	3.396	%
Other Management	Class A Common	651,000	651,000	4.122	%
Other Holders	Class A Common	321,101	321,101	2.034	%
Warrant Shares
Austin Ventures V, L.P.	Class A Common	732,724	961,327	6.088	%
Austin Ventures V Affiliates Fund, L.P.	Class A Common	36,636	48,066	0.304	%
Capital Resource Lenders II, L.P.	Class A Common	192,340	252,348	1.598	%
Northwestern Mutual Life Insurance Company	Class A Common	1,133,328	1,133,328	7.177	%
General Electric Capital Corporation	Class B Common	367,238	367,238	2.326	%
Options
Management	Class A Common	92,000	92,000	0.583	%
				100.000	%

D-1

EXHIBIT E

Capitalization After the Closing

Shareholder	Class of Shares	# of Shares	Fully Diluted Ownership Percentage
Austin Ventures III-A, L.P.	Series A Preferred	3,353,621	8.5
Austin Ventures III-B, L.P.	Series A Preferred	2,832,733	7.2
Austin Ventures V, L.P.	Series A Preferred	1,905,449	4.8
Austin Ventures V Affiliates Fund, L.P.	Series A Preferred	95,272	.2
ABRY Partners IV, L.P.	Class A Common	17,121,419	43.2
ABRY Investment Partnership, L.P.	Class A Common	10,570	—
Capital Resource Lenders II, L.P.	Class A Common	2,964,585	7.5
New York Life Capital Partners II, L.P.	Class A Common	5,000,000	12.6
PPM America Private Equity Fund L.P.	Class A Common	3,333,333	8.4
Hull Family Limited Partnership	Class A Common	536,218	1.4
Other Management	Class A Common	651,000	1.6
Other Holders	Class A Common	321,101	0.8
General Electric Capital Corporation	Class B Common(1)	366,626	0.9
		38,491,927
Warrant Shares
Northwestern Mutual Life Insurance Company	Class A Common	1,133,328	2.9
		39,625,255	100.0	%
Options
Management (2)	Class A Common	92,000

⁽¹⁾ The Class B Common is nonvoting and convertible into an equal number of shares of Class A Common at the option of the holder. Assumes the exercise of the warrant originally held by Heller Financial, Inc. on a cashless exercise basis following the closing of the Recapitalization.

⁽²⁾ All of the management stock options are currently exercisable. Of these options, 25,000 have an exercise price of $1.00 per share and 67,000 have an exercise price of $20.00 per share.

E-1

EXHIBIT F

Form of Amended and Restated Articles of Incorporation

(see attachment)

F-1

EXHIBIT G 10 years; $6.00/share

	Original Equity Investment		Shares Owned		Percent Ownership			Accumulated Dividends As Of 6/30/03		Accumulated Value of Preferred As Of 6/30/03		Accumulated Value of Preferred As Of 6/30/O4 (1)		Principal
Series A
Austin Ventures III-A, L.P.	$	2,168,400		2,713,213		20.3	%	$	1,473,983.96	$	3,642,383.96	$	3,642,383.96
Austin Ventures III-B, L.P.	$	1,831,600		2,291,792		17.2	%	$	1,245,041.97	$	3,076,641.97	$	3,076,641.97
Total	$	4,000,000		5,005,005		37.5	%	$	2,719,025.93	$	6,719,025.93	$	6,719,025.93
Series B
Austin Ventures V, L.P.	$	3,809,524		959,725		7.2	%	$	1,864,822.73	$	5,674,346.73	$	5,674,346.73
Austin Ventures V Affiliates Fund, L.P.	$	190,476		47,986		0.4	%	$	93,241.04	$	283,717.04	$	283,717.04
Capital Resources Lenders II, L.P.	$	1,000,000		251,927		1.9	%	$	489,515.94	$	1,489,515.94	$	1,489,515.94
Total	$	5,000,000		1,259,638		9.4	%	$	2,447,579.71	$	7,447,579.71	$	7,447,579.71
Series C
Windward Capital Partners II, L.P.	$	24,888,237.87						$	14,442,711.66	$	39,330,949.53	$	45,137,262.98		($24,888,237.87	)
Windward Capital L.P. II, LLC	$	1,361,770.64						$	790,239.18	$	2,152,009.82	$	2,469,704.76		($1,361,770.64	)
Capital Resources Lenders II, L.P.	$	1,499,991.49		—		0.00	%	$	870,449.11	$	2,370,440.60	$	2,370,440.60
Total	$	27,750,000.00		—		0.00	%	$	16,103,399.95	$	43,853,399.95	$	49,977,408.34		($26,250,008.51	)
Series C-1
Windward Capital Partners II, L.P.	$	4,439,842.55						$	1,818,395.09	$	6,258,237.64	$	7,294,032.76		($4,439,842.22	)
Windward Capital L.P. II, LLC	$	242,930.03						$	99,495.14	$	342,425.17	$	399,099.64		($242,930.03	)
Capital Resources Lenders II, L.P.	$	267,581.37						$	109,591.43	$	377,172.80	$	377,172.80
Total	$	4,950,353.95						$	2,027,481.66	$	6,977,835.61	$	8,070,305.20		($4,682,772.25	)
Series D
Abry Partners IV, L.P.	$	64,959,900.00		3,096,356		23.2	%	$	19,190,478.02	$	84,150,378.02	$	84,150,378.02
Abry Investment Partnership, L.P.	$	40,100.00		1,912		0.0	%	$	11,850.12	$	51,950.12	$	51,950.12
Capital Resources Lenders II, L.P.	$	5,000,000.00		238,328		1.8	%	$	1,477,102.16	$	6,477,102.16	$	6,477,102.16
Total	$	70,000,000.00		3,336,596		25.0	%	$	20,679,430.30	$	90,679,430.30	$	90,679,430.30
Sub Debt
Austin Ventures III-A, L.P.				33,344		0.2	%
Austin Ventures III-B, L.P.				28,167		0.2	%
Capital Resources Lenders II, L.P.				688,625		5.2	%
Northwestern Mutual				1,133,328		8.5	%
Total				1,883,464		14.1	%
Other
Management				1,187,218		8.9	%
Other Holders				321,101		2.4	%
Heller Financial Warrant				366,626		2.7	%
New York Life Capital Partners II, L.P.														$	30,000,000.00
PPM America Private Equity Fund, L.P.														$	20,000,000.00
Total		111,700,353.95		13,359,648		100.00	%	$	43,976,917.55	$	155,677,271.50	$	162,893,749.48		119,067,219.24
Total By Sponsor
Austin Ventures III-A, L.P.	$	2,168,400.00		2,746,557		20.6	%	$	1,473,983.96	$	3,642,383.96	$	3,642,383.96	$	0.00
Austin Ventures III-B, L.P.	$	1,831,600.00		2,319,959		17.4	%	$	1,245,041.97	$	3,076,641.97	$	3,076,641.97	$	0.00
Austin Ventures V, L.P.	$	3,809,524.00		959,725		7.2	%	$	1,864,822.73	$	5,674,346.73	$	5,674,346.73	$	0.00
Austin Ventures V Affiliates Fund, L.P.	$	190,476.00		47,986		0.4	%	$	93,241.04	$	283,717.04	$	283,717.04	$	0.00
Capital Resources Lenders II, L.P.	$	7,767,572.86		1,178,880		8.8	%	$	2,946,658.64	$	10,714,231.50	$	10,714,231.50	$	0.00
Windward Capital Partners II, L.P.	$	29,328,080.42		—		0.0	%	$	16,261,106.75	$	45,589,187.17	$	52,431,295.74		($29,328,080.09	)
Windward Capital L.P. II, LLC	$	1,604,700.67		—		0.0	%	$	889,734.32	$	2,494,434.99	$	2,868,804.40		($1,604,700.67	)
Abry Partners IV, L.P.	$	64,959,900.00		3,096,356		23.2	%	$	19,190,478.02	$	84,150,378.02	$	84,150,378.02	$	0.00
Abry Investment Partnership, L.P.	$	40,100.00		1,912		0.0	%	$	11,850.12	$	51,950.12	$	51,950.12	$	0.00
Northwestern Mutual	$	0.00		1,133,328		8.5	%	$	0.00	$	0.00	$	0.00		0.00
Management	$	0.00		1,187,218		8.9	%	$	0.00	$	0.00	$	0.00		0.00
Other Holders	$	0.00		321,101		2.4	%	$	0.00	$	0.00	$	0.00		0.00
Heller Financial Warrant	$	0.00		366,626		2.7	%	$	0.00	$	0.00	$	0.00		0.00
New York Life Capital Partners II, L.P.	$	—	$	—	$	—		$	—	$	—	$	—	$	30,000,000.00
PPM America Private Equity Fund, L.P.	$	0.00		—		0.0	%	$	0.00	$	0.00	$	0.00	$	20,000,000.00
Total	$	111,700,353.95		13,359,648		100.0	%	$	43,976,917.55	$	155,677,271.50	$	162,893,749.48	$	19,067,219.24

	Restructuring Dividends			Equity		Total Adjustments			Accumulated Value of Preferred As Of 6/30/04 (1)		New Preferred Converted Shares at Closing	New Common Converted Shares at Closing	New Total Ownership at Closing
Series A
Austin Ventures III-A, L.P.						$	0.00		$	3,642,383.96	607,064	2,713,213	3,320,277
Austin Ventures III-B, L.P.						$	0.00		$	3,076,641.97	512,774	2,291,792	2,804,566
Total						$	0.00		$	6,719,025.93	1,119,838	5,005,005	6,124,843
Series B
Austin Ventures V, L.P.						$	0.00		$	5,674,346.73	945,724	959,725	1,905,449
Austin Ventures V Affiliates Fund, L.P.						$	0.00		$	283.717.04	47,286	47,986	95,272
Capital Resources Lenders II. L.P.						$	0.00		$	1,489,515.94	248,253	251,927	500,180
Total						$	0.00		$	7,447,579.71	1,241,263	1,259,638	2,500,901
Series C
Windward Capital Partners II, L.P.		($20,249,025.11	)				($45,137,262.98	)				0	0
Windward Capital L.P. II, LLC		($1,107,934.12	)				($2,469,704.76	)				0	0
Capital Resources Lenders II, L.P.						$	0.00		$	2,370,440.60	395,073	0	395,073
Total	($	21,356,959.23	)				($47,606,967.74	)	$	2,370,440.60	395,073	0	395,073
Series C-1
Windward Capital Partners II, L.P.		($2,854,190.54	)				($7,294,032.76	)				0	0
Windward Capital L.P. II, LLC		($156,169.61	)				($399,099.64	)				0	0
Capital Resources Lenders II, L.P.						$	0.00		$	377,172.80	62,862	0	62,862
Total		($3,010,360.15	)				($7,693,132.40	)	$	377,172.80	62,862	0	62,862
Series D
Abry Partners IV, L.P.						$	0.00		$	84,150,378.02	14,025,063	3,096,356	17,121,419
Abry Investment Partnership, L.P.						$	0.00		$	51.950.12	8,658	1,912	10,570
Capital Resources Lenders II, L.P.						$	0.00		$	6,477,102.16	1,079,517	238,328	1,317,845
Total						$	0.00		$	90,679,430.30	15,113,238	3,336,596	18,449,834
Sub Debt
Austin Ventures III-A, L.P.												33,344	33,344
Austin Ventures III-B, L.P.												28,167	28,167
Capital Resources Lenders II, L.P.												688,625	688,625
Northwestern Mutual												1,133,328	1,133,323
Total												1,883,464	1,883,464
Other
Management												1,187,218	1,187,218
Other Holders												321,101	321,101
Heller Financial Warrant												366,626	366,626
New York Life Capital Partners II, L.P.						$	30,000,000.00		$	30,000,000.00	5,000,000	0	5,000,000
PPM America Private Equity Fund, L.P.						$	20,000,000.00		$	20,000,000.00	3,333,333	0	3,333,333
Total		($24,367,319.38	)	$	0.00		($5,300,100.14	)	$	157,593,649.34	26,265,608	13,359,648	39,625,256
Total By Sponsor
Austin Ventures III-A, L.P.	$	0.00		$	0 00	$	0.00		$	3,642,383.96	607,064	2,746,557	3,353,621	8.5	%
Austin Ventures III-B, L.P.	$	0.00		$	0 00	$	0.00		$	3,076,641.97	512,774	2,319,959	2,832,733	7.1	%
Austin Ventures V, L.P.	$	0.00		$	0 00	$	0.00		$	5,674,346.73	945,724	959,725	1,905,449	4.8	%
Austin Ventures V Affiliates Fund, L.P.	$	0.00		$	0 00	$	0.00		$	283,717.04	47,286	47,986	95,272	0.2	%
Capital Resources Lenders II, L.P.	$	0.00		$	0.00	$	0.00		$	10,714,231.50	1,785,705	1,178,880	2,964,585	7.5	%
Windward Capital Partners II, L.P.		($23,103,215.65	)	$	0.00		($52,431,295.74	)	$	0.00	—	—	—	0.0	%
Windward Capital L.P. II, LLC		($1,264,103.73	)	$	0.00		($ 2,868,804.40	)	$	0.00	—	—	—	0.0	%
Abry Partners IV, L.P.	$	0.00		$	0.00	$	0.00		$	84,150,378.02	14,025,063	3,096,356	17,121,419	43.2	%
Abry Investment Partnership, L.P.	$	0.00		$	0.00	$	0.00		$	51,950.12	8,658	1,912	10,570	0.0	%
Northwestern Mutual		0.00			0.00	$	0.00			0.00	—	1,133,328	1,133,328	2.9	%
Management		0.00			0.00	$	0.00			0.00	—	1,187,218	1,187,218	3.0	%
Other Holders		0.00			0.00	$	0.00			0.00	—	321,101	321,101	0.8	%
Heller Financial Warrant		0.00			0.00	$	0.00			0.00	—	366,626	366,626	0.9	%
New York Life Capital Partners II, L.P.	$	0.00		$	0.00	$	30,000,000.00		$	30,000,000.00	5,000,000	—	5,000,000	12.6	%
PPM America Private Equity Fund, L.P.		0.00			0.00	$	20,000,000.00		$	20,000,000.00	3,333,333	—	3,333,333	8.4	%
Total		($24,367,319.38	)	$	0.00		($5,300,100.14	)	$	157,593,649.34	26,265,608	13,359,648	39,625,256	100.0	%

⁽¹⁾ Only the figures included in the boxes in this column have been updated to reflect 6/30/04 accumulated dividends

G-1

EXHIBIT H

11 years; $5.30/share

	Original Equity Investment		Shares Owned		Percent Ownership			Accumulated Dividends As Of 6/30/03		Accumulated Value of Preferred As Of 6/30/03		Accumulated Value of Preferred As Of 6/30/04 (1)		Principal
Series A
Austin Ventures III-A, L.P.	$	2,168,400		2,713,213		20.3	%	$	1,473,983.96	$	3,642,383.96	$	3,642,383.96
Austin Ventures III-B, L.P.	$	1,831,600		2,291,792		17.2	%	$	1,245,041.97	$	3,076,641.97	$	3,076,641.97
Total	$	4,000,000		5,005,005		37.5	%	$	2,719,025.93	$	6,719,025.93	$	6,719,025.93
Series B
Austin Ventures V, L.P.	$	3,809,524		959,725		7.2	%	$	1,864,822.73	$	5,674,346.73	$	5,674,346.73
Austin Ventures V Affiliates Fund, L.P.	$	190,476		47,986		0.4	%	$	93,241.04	$	283,717.04	$	283,717.04
Capital Resources Lenders II, L.P.	$	1,000,000		251,927		1.9	%	$	489,515.94	$	1,489,515.94	$	1,489,515.94
Total	$	5,000,000		1,259,638		9.4	%	$	2,447,579.71	$	7,447,579.71	$	7,447,579.71
Series C
Windward Capital Partners II, L.P.	$	24,888,237.87						$	14,442,711.66	$	39,330,949.53	$	45,137,262.98		($24,888,237.87	)
Windward Capital L.P. II, LLC	$	1,361,770.64						$	790,239.18	$	2,152,009.82	$	2,469,704.76		($1,361,770.64	)
Capital Resources Lenders II, L.P.	$	1,499,991.49		—		0.00	%	$	870,449.11	$	2,370,440.60	$	2,370,440.60
Total	$	27,750,000.00		—		0.00	%	$	16,103,399.95	$	43,853,399.95	$	49,977,408.34		($26,250,008.51	)
Series C-1
Windward Capital Partners II, L.P.	$	4,439,842.55						$	1,818,395.09	$	6,258,237.64	$	7,294,032.76		($4,439,842.22	)
Windward Capital L.P. II, LLC	$	242,930.03						$	99,495.14	$	342,425.17	$	399,099.64		($242,930.03	)
Capital Resources Lenders II, L.P.	$	267,581.37						$	109,591.43	$	377,172.80	$	377,172.80
Total	$	4,950,353.95						$	2,027,481.66	$	6,977,835.61	$	8,070,305.20		($4,682,772.25	)
Series D
Abry Partners IV, L.P.	$	64,959,900.00		3,096,356		23.2	%	$	19,190,478.02	$	84,150,378.02	$	84,150,378.02
Abry Investment Partnership, L.P.	$	40,100.00		1,912		0.0	%	$	11,850.12	$	51,950.12	$	51,950.12
Capital Resources Lenders II, L.P.	$	5,000,000.00		238,328		1.8	%	$	1,477,102.16	$	6,477,102.16	$	6,477,102.16
Total	$	70,000,000.00		3,336,596		25.0	%	$	20,679,430.30	$	90,679,430.30	$	90,679,430.30
Sub Debt
Austin Ventures III-A, L.P.				33,344		0.2	%
Austin Ventures III-B, L.P.				28,167		0.2	%
Capital Resources Lenders II, L.P.				688,625		5.2	%
Northwestern Mutual				1,133,328		8.5	%
Total				1,883,464		14.1	%
Other
Management				1,187,218		8.9	%
Other Holders				321,101		2.4	%
Heller Financial Warrant				366,626		2.7	%
New York Life Capital Partners II, L.P.														$	30,000,000.00
PPM America Private Equity Fund, L.P.														$	20,000,000.00
Total		111,700,353.95		13,359,648		100.00	%	$	43,976,917.55	$	155,677,271.50	$	162,893,749.48	$	19,067,219.24
Total By Sponsor
Austin Ventures III-A, L.P.	$	2,168,400.00		2,746,557		20.6	%	$	1,473,983.96	$	3,642,383.96	$	3,642,383.96	$	0.00
Austin Ventures III-B, L.P.	$	1,831,600.00		2,319,959		17.4	%	$	1,245,041.97	$	3,076,641.97	$	3,076,641.97	$	0.00
Austin Ventures V, L.P.	$	3,809,524.00		959,725		7.2	%	$	1,864,822.73	$	5,674,346.73	$	5,674,346.73	$	0.00
Austin Ventures V Affiliates Fund, L.P.	$	190,476.00		47,986		0.4	%	$	93,241.04	$	283,717.04	$	283,717.04	$	0.00
Capital Resources Lenders II, L.P.	$	7,767,572.86		1,178,880		8.8	%	$	2,946,658.64	$	10,714,231.50	$	10,714,231.50	$	0.00
Windward Capital Partners II, L.P.	$	29,328,080.42		—		0.0	%	$	16,261,106.75	$	45,589,187.17	$	52,431,295.74		($29,328,080.09	)
Windward Capital L.P. II, LLC	$	1,604,700.67		—		0.0	%	$	889,734.32	$	2,494,434.99	$	2,868,804.40		($1,604,700.67	)
Abry Partners IV, L.P.	$	64,959,900.00		3,096,356		23.2	%	$	19,190,478.02	$	84,150,378.02	$	84,150,378.02	$	0.00
Abry Investment Partnership, L.P.	$	40,100.00		1,912		0.0	%	$	11,850.12	$	51,950.12	$	51,950.12	$	0.00
Northwestern Mutual	$	0.00		1,133,328		8.5	%	$	0.00	$	0.00	$	0.00		0.00
Management	$	0.00		1,187,218		8.9	%	$	0.00	$	0.00	$	0.00		0.00
Other Holders	$	0.00		321,101		2.4	%	$	0.00	$	0.00	$	0.00		0.00
Heller Financial Warrant	$	0.00		366,626		2.7	%	$	0.00	$	0.00	$	0.00		0.00
New York Life Capital Partners II, L.P.	$	—	$	—	$	—		$	—	$	—	$	—	$	30,000,000 00
PPM America Private Equity Fund, L.P.	$	0.00		—		0.0	%	$	0.00	$	0.00	$	0.00	$	20,000,000. 00
Total	$	111,700,353.95		13,359,648		100.0	%	$	43,976,917.55	$	155,677,271.50	$	162,893,749.48	$	19,067,219.24

	Restructuring Dividends			Equity		Total Adjustments			Adjusted Accumulated Value of Preferred As Of 6/30/04 (1)		New Preferred Converted Shares at Closing	New Common Converted Shares at Closing	New Total Ownership at Closing
Series A
Austin Ventures III-A, L.P.						$	0.00		$	3,642,383.96	687,242	2,713,213	3,400,455
Austin Ventures III-B L.P.						$	0.00		$	3,076,641.97	580,498	2,291,792	2,872,290
Total						$	0.00		$	6,719,025.93	1,267,741	5,005,005	6,272,746
Series B
Austin Ventures V, L.P.						$	0.00		$	5,674,346.73	1,070,631	959,725	2,030,356
Austin Ventures V Affiliates Fund, L.P.						$	0.00		$	283,717.04	53,532	47,986	101,518
Capital Resources Lenders II, L.P						$	0.00		$	1,489,515.94	281,041	251,927	532,968
Total						$	0.00		$	7,447,579.71	1,405,204	1,259,638	2,664,842
Series C
Windward Capital Partners II, L.P.		($20,249,025.11	)				($45,137,262.98	)				0	0
Windward Capital L.P. II, LLC		($1,107,934.12	)				($2,469,704.76	)				0	0
Capital Resources Lenders II, L.P.						$	0.00		$	2,370,440.60	447,253	0	447,253
Total		($21,356,959.23	)				($47,606,967.74	)	$	2,370,440.60	447,253	0	447,253
Series C-1
Windward Capital Partners II, L.P.		($2,854,190.54	)				($7,294,032.76	)				0	0
Windward Capital L.P. II, LLC		($156,169.61	)				($399,099.64	)				0	0
Capital Resources Lenders II, L.P.						$	0.00		$	377,172.80	71,165	0	71,165
Total		($3,010,360.15	)				($7,693,132.40	)	$	377,172.80	71,165	0	71,165
Series D									$	0.00
Abry Partners IV, L.P.						$	0.00		$	84,150,378.02	15,877,430	3,096,356	18,973,786
Abry Investment Partnership, L.P.						$	0.00		$	51,950.12	9,802	1,912	11,714
Capital Resources Lenders II, L.P.						$	0.00		$	6,477,102.16	1,222,095	238,328	1,460,423
Total						$	0.00		$	90,679,430.30	17,109,326	3,336,596	20,445,922
Sub Debt
Austin Ventures III-A, L.P.												33,344	33,344
Austin Ventures III-B, L.P.												28,167	28,167
Capital Resources Lenders II, L.P.												688,625	688,625
Northwestern Mutual												1,133,328	1,133,328
Total												1,883,464	1,883,464
Other
Management												1,187,218	1,187,218
Other Holders												321,101	321,101
Heller Financial Warrant												366,626	366,626
New York Life Capital Partners II, L.P.						$	30,000,000.00		$	30,000,000.00	5,660,377	0	5,660,377
PPM America Private Equity Fund, L.P.						$	20,000,000.00		$	20,000,000.00	3,773,585	0	3,773,585
Total		($24,367,319.38	)	$	0.00		($5,300,100.14	)	$	157,593,649.34	29,734,651	13,359,648	43,094,299
Total By Sponsor
Austin Ventures III-A, L.P.	$	0.00		$	0.00	$	0.00		$	3,642,383.96	687,242	2,746,557	3,433,799	8.0	%
Austin Ventures III-B, L.P.	$	0.00		$	0.00	$	0.00		$	3,076,641.97	580,498	2,319,959	2,900,457	6.7	%
Austin Ventures V, L.P.	$	0 00		$	0.00	$	0.00		$	5,674,346.73	1,070,631	959,725	2,030,356	4.7	%
Austin Ventures V Affiliates Fund, L.P.	$	0.00		$	0.00	$	0.00		$	283,717.04	53,532	47,986	101,518	0.2	%
Capital Resources Lenders II, L.P.	$	0.00		$	0.00	$	0.00		$	10,714,231.50	2,021,553	1,178,880	3,200,433	7.4	%
Windward Capital Partners II, L.P.		($23,103,215.65	)	$	0.00		($52,431,295.74	)	$	0.00	—	—	—	0.0	%
Windward Capital L.P. II, LLC		($1,264,103.73	)	$	0.00		($2,868,804.40	)	$	0.00	—	—	—	0.0	%
Abry Partners IV, L.P.	$	0.00		$	0.00	$	0.00		$	84,150,378.02	15,877,430	3,096,356	18,973,786	44.0	%
Abry Investment Partnership, L.P.	$	0.00		$	0.00	$	0.00		$	51,950.12	9,802	1,912	11,714	0.0	%
Northwestern Mutual		0.00			0.00	$	0.00			0.00	—	1,133,328	1,133,328	2.6	%
Management		0.00			0.00	$	0.00			0.00	—	1,187,218	1,187,218	2.8	%
Other Holders		0.00			0.00	$	0.00			0.00	—	321,101	321,101	0.7	%
Heller Financial Warrant		0.00			0.00	$	0.00			0.00	—	366,626	366,626	0.9	%
New York Life Capital Partners II, L.P.	$	0.00		$	0.00	$	30,000,000.00		$	30,000,000.00	5,660,377	—	5,660,377	13.1	%
PPM America Private Equity Fund, L.P.		0.00			0.00	$	20,000,000.00		$	20,000,000.00	3,773,585	—	3,773,585	8.8	%
Total		($24,367,319.38	)	$	0.00		($5,300,100.14	)	$	157,593,649.34	29,734,651	13,359,648	43,094,299	100.0	%

⁽¹⁾ Only the figures included in the boxes in this column have been updated to reflect 6/30/04 accumulated dividends.

H-1

12 years; $4.60/share

	Original Equity Investment		Shares Owned		Percent Ownership			Accumulated Dividends As Of 6/30/03		Accumulated Value of Preferred As Of 6/30/03		Accumulated Value of Preferred As Of 6/30/04 (1)		Principal
Series A
Austin Ventures III-A, L.P.	$	2,168,400		2,713,213		20.3	%	$	1,473,983.96	$	3,642,383.96	$	3,642,383.96
Austin Ventures III-B, L.P.	$	1,831,600		2,291,792		17.2	%	$	1,245,041.97	$	3,076,641.97	$	3,076,641.97
Total	$	4,000,000		5,005,005		37.5	%	$	2,719,025.93	$	6,719,025.93	$	6,719,025.93
Series B
Austin Ventures V, L.P.	$	3,809,524		959,725		7.2	%	$	1,864,822.73	$	5,674,346.73	$	5,674,346.73
Austin Ventures V Affiliates Fund, L.P.	$	190,476		47,986		0.4	%	$	93,241.04	$	283,717.04	$	283,717.04
Capital Resources Lenders II, L.P.	$	1,000,000		251,927		1.9	%	$	489,515.94	$	1,489,515.94	$	1,489,515.94
Total	$	5,000,000		1,259,638		9.4	%	$	2,447,579.71	$	7,447,579.71	$	7,447,579.71
Series C
Windward Capital Partners II, L.P.	$	24,888,237.87						$	14,442,711.66	$	39,330,949.53	$	45,137,262.98		($24,888,237.87	)
Windward Capital L.P. II, LLC	$	1,361,770.64						$	790,239.18	$	2,152,009.82	$	2,469,704.76		($1,361,770.64	)
Capital Resources Lenders II, L.P.	$	1,499,991.49		—		0.00	%	$	870,449.11	$	2,370,440.60	$	2,370,440.60
Total	$	27,750,000.00		—		0.00	%	$	16,103,399.95	$	43,853,399.95	$	49,977,408.34		($26,250,008.51	)
Series C-1
Windward Capital Partners II, L.P.	$	4,439,842.55						$	1,818,395.09	$	6,258,237.64	$	7,294,032.76		($4,439,842.22	)
Windward Capital L.P. II, LLC	$	242,930.03						$	99,495.14	$	342,425.17	$	399,099.64		($242,930.03	)
Capital Resources Lenders II, L.P.	$	267,581.37						$	109,591.43	$	377,172.80	$	377,172.80
Total	$	4,950,353.95						$	2,027,481.66	$	6,977,835.61	$	8,070,305.20		($4,682,772.25	)
Series D
Abry Partners IV, L.P.	$	64,959,900.00		3,096,356		23.2	%	$	19,190,478.02	$	84,150,378.02	$	84,150,378.02
Abry Investment Partnership, L.P.	$	40,100.00		1,912		0.0	%	$	11,850.12	$	51,950.12	$	51,950.12
Capital Resources Lenders II, L.P.	$	5,000,000.00		238,328		1.8	%	$	1,477,102.16	$	6,477,102.16	$	6,477,102.16
Total	$	70,000,000.00		3,336,596		25.0	%	$	20,679,430.30	$	90,679,430.30	$	90,679,430.30
Sub Debt
Austin Ventures III-A, L.P.				33,344		0.2	%
Austin Ventures III-B, L.P.				28,167		0.2	%
Capital Resources Lenders II, L.P.				688,625		5.2	%
Northwestern Mutual				1,133,328		8.5	%
Total				1,883,464		14.1	%
Other
Management				1,187,218		8.9	%
Other Holders				321,101		2.4	%
Heller Financial Warrant				366,626		2.7	%
New York Life Capital Partners II, L.P.														$	30,000,000.00
PPM America Private Equity Fund, L.P.														$	20,000,000.00
Total		111,700,353.95		13,359,648		100.00	%	$	43,976,917.55	$	155,677,271.50	$	162,893,749.48	$	19,067,219.24
Total By Sponsor
Austin Ventures III-A, L.P.	$	2,168,400.00		2,746,557		20.6	%	$	1,473,983.96	$	3,642,383.96	$	3,642,383.96	$	0.00
Austin Ventures III-B, L.P.	$	1,831,600.00		2,319,959		17.4	%	$	1,245,041.97	$	3,076,641.97	$	3,076,641.97	$	0.00
Austin Ventures V, L.P.	$	3,809,524.00		959,725		7.2	%	$	1,864,822.73	$	5,674,346.73	$	5,674,346.73	$	0.00
Austin Ventures V Affiliates Fund, L.P.	$	190,476.00		47,986		0.4	%	$	93,241.04	$	283,717.04	$	283,717.04	$	0.00
Capital Resources Lenders II, L.P.	$	7,767,572.86		1,178,880		8.8	%	$	2,946,658.64	$	10,714,231.50	$	10,714,231.50	$	0.00
Windward Capital Partners II, L.P.	$	29,328,080.42		—		0.0	%	$	16,261,106.75	$	45,589,187.17	$	52,431,295.74		($29,328,080.09	)
Windward Capital L.P. II, LLC	$	1,604,700.67		—		0.0	%	$	889,734.32	$	2,494,434.99	$	2,868,804.40		($1,604,700.67	)
Abry Partners IV, L.P.	$	64,959,900.00		3,096,356		23.2	%	$	19,190,478.02	$	84,150,378.02	$	84,150,378.02	$	0.00
Abry Investment Partnership, L.P.	$	40,100.00		1,912		0.0	%	$	11,850.12	$	51,950.12	$	51,950.12	$	0.00
Northwestern Mutual	$	0.00		1,133,328		8.5	%	$	0.00	$	0.00	$	0.00		0.00
Management	$	0.00		1,187,218		8.9	%	$	0.00	$	0.00	$	0.00		0.00
Other Holders	$	0.00		321,101		2.4	%	$	0.00	$	0.00	$	0.00		0.00
Heller Financial Warrant	$	0.00		366,626		2.7	%	$	0.00	$	0.00	$	0.00		0.00
New York Life Capital Partners II, L.P.	$	—	$	—	$	—		$	—	$	—	$	—	$	30,000,000.00
PPM America Private Equity Fund, L.P.	$	0.00		—		0.0	%	$	0.00	$	0.00	$	0.00	$	20,000,000.00
Total	$	111,700,353.95		13,359,648		100.0	%	$	43,976,917.55	$	155,677,271.50	$	162,893,749.43	$	19,067,219.24

	Restructuring Dividends			Equity		Total Adjustments			Adjusted Accumulated Value of Preferred As Of 6/30/04 (1)		New Preferred Shares at Closing	New Common Converted Shares at Closing	New Total Ownership at Closing
Series A
Austin Ventures III-A, L.P.						$	0.00		$	3,642,383.96	791,823	2,713,213	3,505,036
Austin Ventures III-B, L.P.						$	0.00		$	3,076,641.97	668,835	2,291,792	2,960,627
Total						$	0.00		$	6,719,025.93	1,460,658	5,005,005	6,465,663
Series B
Austin Ventures V, L.P.						$	0.00		$	5,674,346.73	1,233,554	959,725	2,193,278
Austin Ventures V Affiliates Fund, L.P.						$	0.00		$	283,717.04	61,678	47,986	109,664
Capital Resources Lenders II, L.P.						$	0.00		$	1,489,515.94	323,808	251,927	575,735
Total						$	0.00		$	7,447,579.71	1,619,039	1,259,638	2,878,677
Series C
Windward Capital Partners II, L.P.		($20,249,025.11	)				($45,137,262.98	)				0	0
Windward Capital L.P. II, LLC		($1,107,934.12	)				($2,469,704.76	)				0	0
Capital Resources Lenders II, L.P.						$	0.00		$	2,370,440.60	515,313	0	515,313
Total		($21,356,959.23	)				($47,606,967.74	)	$	2,370,440.60	515,313	0	515,313
Series C-1
Windward Capital Partners II, L.P.		($2,854,190.54	)				($7,294,032.76	)				0	0
Windward Capital L.P. II, LLC		($156,169.61	)				($399,099.64	)				0	0
Capital Resources Lenders II, L.P.						$	0.00		$	377,172.80	81,994	0	81,994
Total		($3,010,360.15	)				($7,693,132.40	)	$	377,172.80	81,994	0	81,994
Series D									$	0.00
Abry Partners IV, L.P.						$	0.00		$	84,150,378.02	18,293,560	3,096,356	21,389,916
Abry Investment Partnership, L.P.						$	0.00		$	51,950.12	11,294	1,912	13,206
Capital Resources Lenders II, L.P.						$	0.00		$	6,477,102.16	1,408,066	238,328	1,646,394
Total						$	0.00		$	90,679,430.30	19,712,920	3,336,596	23,049,516
Sub Debt
Austin Ventures III-A, L.P.												33,344	33,344
Austin Ventures III-B, L.P.												28,167	28,167
Capital Resources Lenders II, L.P.												688,625	688,625
Northwestern Mutual												1,133,328	1,133,328
Total												1,883,464	1,883,464
Other
Management												1,187,218	1,187,218
Other Holders												321,101	321,101
Heller Financial Warrant												366,626	366,626
New York Life Capital Partners II, L.P.						$	30,000,000.00		$	30,000,000.00	6,521,739	0	6,521,739
PPM America Private Equity Fund, L.P.						$	20,000,000.00		$	20,000,000.00	4,347,826	0	4,347,826
Total		($24,367,319.38	)	$	0.00		($5,300,100.14	)	$	157,593,649.34	34,259,489	13,359,648	47,619,137
Total By Sponsor
Austin Ventures III-A, L.P.	$	0.00		$	0.00	$	0.00		$	3,642,383.96	791,823	2,746,557	3,538,380	7.4	%
Austin Ventures III-B, L.P.	$	0.00		$	0.00	$	0.00		$	3,076,641.97	668,835	2,319,959	2,988,794	6.3	%
Austin Ventures V, L.P.	$	0.00		$	0.00	$	0.00		$	5,674,346.73	1,233,554	959,725	2,193,278	4.6	%
Austin Ventures V Affiliates Fund, L.P.	$	0.00		$	0.00	$	0.00		$	283,717.04	61,678	47,986	109,664	0.2	%
Capital Resources Lenders II, L.P.	$	0.00		$	0.00	$	0.00		$	10,714,231.50	2,329,181	1,178,880	3,508,061	7.4	%
Windward Capital Partners II, L.P.		($23,103,215.65	)	$	0.00		($52,431,295.74	)	$	0.00	—	—	—	0.0	%
Windward Capital L.P. II, LLC	$	1,284,103.73		$	0.00		($2,868,804.40	)	$	0.00	—	—	—	0.0	%
Abry Partners IV, L.P.	$	0.00		$	0.00	$	0.00		$	84,150,378.02	18,293,560	3.096,356	21,389,916	44.9	%
Abry Investment Partnership, L.P.	$	0.00		$	0.00	$	0.00		$	51,950.12	11,294	1,912	13,206	0.0	%
Northwestern Mutual		0.00			0.00	$	0.00			0.00	—	1,133,328	1,133,328	2.4	%
Management		0.00			0.00	$	0.00			0.00	—	1,187,218	1,187,218	2.5	%
Other Holders		0.00			0.00	$	0.00			0.00	—	321,101	321,101	0.7	%
Heller Financial Warrant		0.00			0.00	$	0.00			0.00	—	366,626	366,626	0.8	%
New York Life Capital Partners II, L.P.	$	0.00		$	0.00	$	30,000,000.00		$	30,000,000.00	6,521,739	—	6,521,739	13.7	%
PPM America Private Equity Fund, L.P.		0.00			0.00	$	20,000,000.00		$	20,000,000.00	4,347,826	—	4,347,826	9.1	%
Total		($24,367,319.38	)	$	0.00		($5,300,100.14	)	$	157,593,649.34	34,259,489	13,359,648	47,619,137	100.0	%

⁽¹⁾ Only the figures included in the boxes in this column have been updated to reflect 6/30/04 accumulated dividends

H-2

13 years, $3.90/share

	Original Equity Investment		Shares Owned		Percent Ownership			Accumulated Dividends As Of 6/30/03		Accumulated Value of Preferred As Of 6/30/03		Accumulated Value of Preferred As Of 6/30/04(1)		Principal
Series A
Austin Ventures III-A, L.P.	$	2,168,400		2,713,213		20.3	%	$	1,473,983.96	$	3,642,383.96	$	3,642,383.96
Austin Ventures III-B, L.P.	$	1,831,600		2,291,792		17.2	%	$	1,245,041.97	$	3,076,641.97	$	3,076,641.97
Total	$	4,000,000		5,005,005		37.5	%	$	2,719,025.93	$	6,719,025.93	$	6,719,025.93
Series B
Austin Ventures V, L.P.	$	3,809,524		959,725		7.2	%	$	1,864,822.73	$	5,674,346.73	$	5,674,346.73
Austin Ventures V Affiliates Fund, L.P.	$	190,476		47,986		0.4	%	$	93,241.04	$	283,717.04	$	283,717.04
Capital Resources Lenders II, L.P.	$	1,000,000		251,927		1.9	%	$	489,515.94	$	1,489,515.94	$	1,489,515.94
Total	$	5,000,000		1,259,638		9.4	%	$	2,447,579.71	$	7,447,579.71	$	7,447,579.71
Series C
Windward Capital Partners II, L.P.	$	24,888,237.87						$	14,442,711.66	$	39,330,949.53	$	45,137,262.98		($24,888,237.87	)
Windward Capital L.P. II, LLC	$	1,361,770.64						$	790,239.18	$	2,152,009.82	$	2,469,704.76		($1,361,770.64	)
Capital Resources Lenders II, L.P.	$	1,499,991.49		—		0.00	%	$	870,449.11	$	2,370,440.60	$	2,370,440.60
Total	$	27,750,000.00		—		0.00	%	$	16,103,399.95	$	43,853,399.95	$	49,977,408.34		($26,250,008.51	)
Series C-l
Windward Capital Partners II, L.P.	$	4,439,842.55						$	1,818,395.09	$	6,258,237.64	$	7,294,032.76		($4,439,842.22	)
Windward Capital L.P. II, LLC	$	242,930.03						$	99,495.14	$	342,425.17	$	399,099.64		($242,930.03	)
Capital Resources Lenders II, L.P.	$	267,581.37						$	109,591.43	$	377,172.80	$	377,172.80
Total	$	4,950,353.95						$	2,027,481.66	$	6,977,835.61	$	8,070,305.20		($4,682,772.25	)
Series D
Abry Partners IV, L.P.	$	64,959,900.00		3,096,356		23.2	%	$	19,190,478.02	$	84,150,378.02	$	84,150,378.02
Abry Investment Partnership, L.P.	$	40,100.00		1,912		0.0	%	$	11,850.12	$	51,950.12	$	51,950.12
Capital Resources Lenders II, L.P.	$	5,000,000.00		238,328		1.8	%	$	1,477,102.16	$	6,477,102.16	$	6,477,102.16
Total	$	70,000,000.00		3,336,596		25.0	%	$	20,679,430.30	$	90,679,430.30	$	90,679,430.30
Sub Debt
Austin Ventures III-A, L.P.				33,344		0.2	%
Austin Ventures III-B, L.P.				28,167		0.2	%
Capital Resources Lenders II, L.P.				688,625		5.2	%
Northwestern Mutual				1,133,328		8.5	%
Total				1,883,464		14.1	%
Other
Management				1,187,218		8.9	%
Other Holders				321,101		2.4	%
Heller Financial Warrant				366,626		2.7	%
New York Life Capital Partners II, L.P.														$	30,000,000.00
PPM America Private Equity Fund, L.P.														$	20,000,000.00
Total		111,700,353.95		13,359,648		100.00	%	$	43,976,917.55	$	155,677,271.50	$	162,893,749.48	$	19,067,219.24
Total By Sponsor
Austin Ventures III-A, L.P.	$	2,168,400.00		2,746,557		20.6	%	$	1,473,983.96	$	3,642,383.96	$	3,642,383.96	$	0.00
Austin Ventures III-B, L.P.	$	1,831,600.00		2,319,959		17.4	%	$	1,245,041.97	$	3,076,641.97	$	3,076,641.97	$	0.00
Austin Ventures V, L.P.	$	3,809,524.00		959,725		7.2	%	$	1,864,822.73	$	5,674,346.73	$	5,674,346.73	$	0.00
Austin Ventures V Affiliates Fund, L.P.	$	190,476.00		47,986		0.4	%	$	93,241.04	$	283,717.04	$	283,717.04	$	0.00
Capital Resources Lenders II, L.P.	$	7,767,572.86		1,178,880		8.8	%	$	2,946,658.64	$	10,714,231.50	$	10,714,231.50	$	0.00
Windward Capital Partners II, L.P.	$	29,328,080.42		—		0.0	%	$	16,261,106.75	$	45,589,187.17	$	52,431,295.74		($29,328,080.09	)
Windward Capital L.P. II, LLC	$	1,604,700.67		—		0.0	%	$	889,734.32	$	2,494,434.99	$	2,868,804.40		($1,604,700.67	)
Abry Partners IV, L.P.	$	64,959,900.00		3,096,356		23.2	%	$	19,190,478.02	$	84,150,378.02	$	84,150,378.02	$	0.00
Abry Investment Partnership, L.P.	$	40,100.00		1,912		0.0	%	$	11,850.12	$	51,950.12	$	51,950.12	$	0.00
Northwestern Mutual	$	0.00		1,133,328		8.5	%	$	0.00	$	0.00	$	0.00		0.00
Management	$	0.00		1,187,218		8.9	%	$	0.00	$	0.00	$	0.00		0.00
Other Holders	$	0.00		321,101		2.4	%	$	0.00	$	0.00	$	0.00		0.00
Heller Financial Warrant	$	0.00		366,626		2.7	%	$	0.00	$	0.00	$	0.00		0.00
New York Life Capital Partners II, L.P.	$	—	$	—	$	—		$	—	$	—	$	—	$	30,000,000.00
PPM America Private Equity Fund, L.P.	$	0.00		—		0.0	%	$	0.00	$	0.00	$	0.00	$	20,000,000.00
Total	$	111,700,353.95		13,359,648		100.0	%	$	43,976,917.55	$	155,677,271.50	$	162,893,749.48	$	19,067,219.24

	Restructuring Dividends			Equity		Total Adjustments			Adjusted Accumulated Value of Preferred As Of 6/30/04(1)		New Preferred Converted Shares at Closing	New Common Converted Shares at Closing	New Total Ownership at Closing
Series A
Austin Ventures III-A, L.P.						$	0.00		$	3,642,383.96	933,945	2,713,213	3,647,158
Austin Ventures III-B, L.P.						$	0.00		$	3,076,641.97	788,883	2,291,792	3,080,675
Total						$	0.00		$	6,719,025.93	1,722,827	5,005,005	6,727,832
Series B
Austin Ventures V, L.P.						$	0.00		$	5,674,346.73	1,454,961	959,725	2,414,686
Austin Ventures V Affiliates Fund, L.P.						$	0.00		$	283,717.04	72,748	47,986	120,734
Capital Resources Lenders II, L.P.						$	0.00		$	1,489,515.94	381,927	251,927	633,854
Total						$	0.00		$	7,447,579.71	1,909,636	1,259,638	3,169,274
Series C
Windward Capital Partners II, L.P.		($20,249,025.11	)				($45,137,262.98	)				0	0
Windward Capital L.P. II, LLC		($1,107,934.12	)				($2,469,704.76	)				0	0
Capital Resources Lenders II, L.P.						$	0.00		$	2,370,440.60	607,805	0	607,805
Total		($21,356,959.23	)				($47,606,967.74	)	$	2,370,440.60	607,805	0	607,805
Series C-l
Windward Capital Partners II, L.P.		($2,854,190.54	)				($7,294,032.76	)				0	0
Windward Capital L.P. II, LLC		($156,169.61	)				($399,099.64	)				0	0
Capital Resources Lenders II, L.P.						$	0.00		$	377,172.80	96,711	0	96,711
Total		($3,010,360.15	)				($7,693,132.40	)	$	377,172.80	96,711	0	96,711
Series D									$	0.00
Abry Partners IV, L.P.						$	0.00		$	84,150,378.02	21,577,020	3,096,356	24,673,376
Abry Investment Partnership, L.P.						$	0.00		$	51,950.12	13,321	1,912	15,233
Capital Resources Lenders II, L.P.						$	0.00		$	6,477,102.16	1,660,795	238,328	1,899,123
Total						$	0.00		$	90,679,430.30	23,251,136	3,336,596	26,587,732
Sub Debt
Austin Ventures III-A, L.P												33,344	33,344
Austin Ventures III-B, L.P.												28,167	28,167
Capital Resources Lenders II, L.P.												688,625	688,625
Northwestern Mutual												1,133,328	1,133,328
Total												1,883,464	1,883,464
Other
Management												1,187,218	1,187,218
Other Holders												321,101	321,101
Heller Financial Warrant												366,626	366,626
New York Life Capital Partners II, L.P.						$	30,000,000.00		$	30,000,000.00	7,692,308	0	7,692,308
PPM America Private Equity Fund, L.P.						$	20,000,000.00		$	20,000,000.00	5,128,205	0	5,128,205
Total		($24,367,319.38	)	$	0.00		($5,300,100.14	)	$	157,593,649.34	40,408,628	13,359,648	53,768,276
Total By Sponsor
Austin Ventures III-A, L.P.	$	0.00		$	0.00	$	0.00		$	3,642,383.96	933,945	2,746,557	3,680,502	6.8	%
Austin Ventures III-B, L.P.	$	0.00		$	0.00	$	0.00		$	3,076,641.97	788,883	2,319,959	3,108,842	5.8	%
Austin Ventures V, L.P.	$	0.00		$	0.00	$	0.00		$	5,674,346.73	1,454,961	959,725	2,414,686	4.5	%
Austin Ventures V Affiliates Fund, L.P.	$	0.00		$	0.00	$	0.00		$	283,717.04	72,748	47,986	120,734	0.2	%
Capital Resources Lenders II, L.P.	$	0.00		$	0.00	$	0.00		$	10,714,231.50	2,747,239	1,178,880	3,926,119	7.3	%
Windward Capital Partners II, L.P.		($23,103,215.65	)	$	0.00	($	52,431,295.74	)	$	0.00	—	—	—	0.0	%
Windward Capital L.P. II, LLC		($1,264,103.73	)	$	0.00	($	2,868,804.40	)	$	0.00	—	—	—	0.0	%
Abry Partners IV, L.P.	$	0.00		$	0.00	$	0.00		$	84,150,378.02	21,577,020	3,096,356	24,673,376	45.9	%
Abry Investment Partnership, L.P.	$	0.00		$	0.00	$	0.00		$	51,950.12	13,321	1,912	15,233	0.0	%
Northwestern Mutual		0.00			0.00	$	0.00			0.00	—	1,133,328	1,133,328	2.1	%
Management		0.00			0.00	$	0.00			0.00	—	1,187,218	1,187,218	2.2	%
Other Holders		0.00			0.00	$	0.00			0.00	—	321,101	321,101	0.6	%
Heller Financial Warrant		0.00			0.00	$	0.00			0.00	—	366,626	366,626	0.7	%
New York Life Capital Partners II, L.P.	$	0.00		$	0.00	$	30,000,000.00		$	30,000,000.00	7,692,308	—	7,692,308	14.3	%
PPM America Private Equity Fund, L.P.		0.00			0.00	$	20,000,000.00		$	20,000,000.00	5,128,205	—	5,128,205	9.5	%
Total		($24,367,319.38	)	$	0.00		($5,300,100.14	)	$	157,593,649.34	40,408,628	13,359,648	53,768,276	100.0	%

⁽¹⁾ Only the figures included in the boxes in this column have been updated to reflect 6/30/04 accumulated dividends

H-3

14 years; $3.20/share

	Original Equity Investment		Shares Owned		Percent Ownership			Accumulated Dividends As Of 6/30/03		Accumulated Value of Preferred As Of 6/30/03		Accumulated Value of Preferred As Of 6/30/04 (1)		Principal
Series A
Austin Ventures III-A, L.P.	$	2,168,400		2,713,213		20.3	%	$	1,473,983.96	$	3,642,383.96	$	3,642,383.96
Austin Ventures III-B, L.P.	$	1,831,600		2,291,792		17.2	%	$	1,245,041.97	$	3,076,641.97	$	3,076,641.97
Total	$	4,000,000		5,005,005		37.5	%	$	2,719,025.93	$	6,719,025.93	$	6,719,025.93
Series B
Austin Ventures V, L.P.	$	3,809,524		959,725		7.2	%	$	1,864,822.73	$	5,674,346.73	$	5,674,346.73
Austin Ventures V Affiliates Fund, L.P.	$	190,476		47,986		0.4	%	$	93,241.04	$	283,717.04	$	283,717.04
Capital Resources Lenders II, L.P.	$	1,000,000		251,927		1.9	%	$	489,515.94	$	1,489,515.94	$	1,489,515.94
Total	$	5,000,000		1,259,638		9.4	%	$	2,447,579.71	$	7,447,57.71	$	7,447,579.71
Series C
Windward Capital Partners II, L.P.	$	24,888,237.87						$	14,442,711.66	$	39,330,949.53	$	45,137,262.98		($24,888,237.87	)
Windward Capital L.P. II, LLC	$	1,361,770.64						$	790,239.18	$	2,152,009.82	$	2,469,704.76		($1,361,770.64	)
Capital Resources Lenders II, L.P.	$	1,499,991.49		—		0.00	%	$	870,449.11	$	2,370,440.60	$	2,370,440.60
Total	$	27,750,000.00		—		0.00	%	$	16,103,399.95	$	43,853,399.95	$	49,977,408.34		($26,250,008.51	)
Series C-1
Windward Capital Partners II, L.P.	$	4,439,842.55						$	1,818,395.09	$	6,258,237.64	$	7,294,032.76		($4,439,842.22	)
Windward Capital L.P. II, LLC	$	242,930.03						$	99,495.14	$	342,425.17	$	399,099.64		($242,930.03	)
Capital Resources Lenders II, L.P.	$	267,581.37						$	109,591.43	$	377,172.80	$	377,172.80
Total	$	4,950,353.95						$	2,027,481.66	$	6,977,835.61	$	8,070,305.20		($4,682,772.25	)
Series D
Abry Partners IV, L.P.	$	64,959,900.00		3,096,356		23.2	%	$	19,190,478.02	$	84,150,378.02	$	84,150,378.02
Abry Investment Partnership, L.P.	$	40,100.00		1,912		0.0	%	$	11,850.12	$	51,950.12	$	51,950.12
Capital Resources Lenders II, L.P.	$	5,000,000.00		238,328		1.8	%	$	1,477,102.16	$	6,477,102.16	$	6,477,102.16
Total	$	70,000,000.00		3,336,596		25.0	%	$	20,679,430.30	$	90,679,430.30	$	90,679,430.30
Sub Debt
Austin Ventures III-A, L.P.				33,344		0.2	%
Austin Ventures III-B, L.P.				28,167		0.2	%
Capital Resources Lenders II, L.P.				688,625		5.2	%
Northwestern Mutual				1,133,328		8.5	%
Total				1,883,464		14.1	%
Other
Management				1,187,218		8.9	%
Other Holders				321,101		2.4	%
Heller Financial Warrant				366,626		2.7	%
New York Life Capital Partners II, L.P.														$	30,000,000.00
PPM America Private Equity Fund, L.P.														$	20,000,000.00
Total		111,700,353.95		13,359,648		100.00	%	$	43,976,917.55	$	155,677,271.50	$	162,893,749.48	$	19,067,219.24
Total By Sponsor
Austin Ventures III-A, L.P.	$	2,168,400.00		2,746,557		20.6	%	$	1,473,983.96	$	3,642,383.96	$	3,642,383.96	$	0.00
Austin Ventures III-B, L.P.	$	1,831,600.00		2,319,959		17.4	%	$	1,245,041.97	$	3,076,641.97	$	3,076,641.97	$	0.00
Austin Ventures V, L.P.	$	3,809,524.00		959,725		7.2	%	$	1,864,822.73	$	5,674,346.73	$	5,674,346.73	$	0.00
Austin Ventures V Affiliates Fund, L.P.	$	190,476.00		47,986		0.4	%	$	93,241.04	$	283,717.04	$	283,717.04	$	0.00
Capital Resources Lenders II, L.P.	$	7,767,572.36		1,178,880		8.8	%	$	2,946,658.64	$	10,714,231.50	$	10,714,231.50	$	0.00
Windward Capital Partners II, L.P.	$	29,328,080.42		—		0.0	%	$	16,261,106.75	$	45,589,187.17	$	52,431,295.74		($29,328,080.09	)
Windward Capital L.P. II, LLC	$	1,604,700.67		—		0.0	%	$	889,734.32	$	2,494,434.99	$	2,868,804.40		($1,604,700.67	)
Abry Partners IV, L.P.	$	64,959,900.00		3,096,356		23.2	%	$	19,190,478.02	$	84,150,378.02	$	84,150,378.02	$	0.00
Abry Investment Partnership, L.P.	$	40,100.00		1,912		0.0	%	$	11,850.12	$	51,950.12	$	51,950.12	$	0.00
Northwestern Mutual	$	0.00		1,133,328		8.5	%	$	0.00	$	0.00	$	0.00		0.00
Management	$	0.00		1,187,218		8.9	%	$	0.00	$	0.00	$	0.00		0.00
Other Holders	$	0.00		321,101		2.4	%	$	0.00	$	0.00	$	0.00		0.00
Heller Financial Warrant	$	0.00		366,626		2.7	%	$	0.00	$	0.00	$	0.00		0.00
New York Life Capital Partners II, L.P.	$	—	$	—	$	—		$	—	$	—	$	—	$	30,000,000.00
PPM America Private Equity Fund, L.P.	$	0.00		—		0.0	%	$	0.00	$	0.00	$	0.00	$	20,000,000.00
Total	$	111,700,353.95		13,359,648		100.0	%	$	43,976,917.55	$	155,677,271.50	$	162,893,749.48	$	19,067,219.24

	Restructuring Dividends			Equity		Total Adjustment			Adjusted Accumulated Value of Preferred As Of 6/30/04(1)		New Preferred Converted Shares at Closing	New Common Converted Shares at Closing	New Total Ownership at Closing
Series A
Austin Ventures III-A, L.P.						$	0.00		$	3,642,383.96	1,138,245	2,713,213	3,851,458
Austin Ventures III-B, L.P.						$	0.00		$	3,076,641.97	961,451	2,291,792	3,253,243
Total						$	0.00		$	6,719,025.93	2,099,696	5,005,005	7,104,701
Series B
Austin Ventures V, L.P.						$	0.00		$	5,674,346.73	1,773,233	959,725	2,732,958
Austin Ventures V Affiliates Fund, L.P.						$	0.00		$	283,717.04	88,662	47,986	136,648
Capital Resources Lenders II, L.P.						$	0.00		$	1,489,515.94	465,474	251,927	717,401
Total						$	0.00		$	7,447,579.71	2,327,369	1,259,638	3,587,007
Series C
Windward Capital Partners II, L.P.		($20,249,025.11	)				($45,137,262.98	)				0	0
Windward Capital L.P. II, LLC		($1,107,934.12	)				($2,469,704.76	)				0	0
Capital Resources Lenders II, L.P.						$	0.00		$	2,370,440.60	740,763	0	740,763
Total		($21,356,959.23	)				($47,606,967.74	)	$	2,370,440.60	740,763	0	740,763
Series C-1
Windward Capital Partners II, L.P.		($2,854,190.54	)				($7,294,032.76	)				0	0
Windward Capital L.P. II, LLC		($156,169.61	)				($399,099.64	)				0	0
Capital Resources Lenders II, L.P.						$	0.00		$	377,172.80	117,867	0	117,867
Total		($3,010,360.15	)				($7,693,132.40	)	$	377,172.80	117,867	0	117,867
Series D									$	0.00
Abry Partners IV, L.P.						$	0.00		$	84,150,378.02	26,296,993	3,096,356	29,393,349
Abry Investment Partnership, L.P.						$	0.00		$	51,950.12	16,234	1,912	18,146
Capital Resources Lenders II, L.P.						$	0.00		$	6,477,102.16	2,024,094	238,328	2,262,422
Total						$	0.00		$	90,679,430.30	28,337,322	3,336,596	31,673,918
Sub Debt
Austin Ventures Ill-A, L.P.												33,344	33,344
Austin Ventures Ill-B, L.P.												28,167	28,167
Capital Resources Lenders II, L.P.												688,625	688,625
Northwestern Mutual												1,133,328	1,133,328
Total												1,883,464	1,883,464
Other
Management												1,187,218	1,187,218
Other Holders												321,101	321,101
Heller Financial Warrant												366,626	366,626
New York Life Capital Partners II, L.P.						$	30,000,000.00		$	30,000,000.00	9,375,000	0	9,375,000
PPM America Private Equity Fund, L.P.						$	20,000,000.00		$	20,000,000.00	6,250,000	0	6,250,000
Total		($24,367,319.38	)	$	0.00		($5,300,100.14	)	$	157,593,649.34	49,248,015	13,359,648	62,607,663
Total By Sponsor
Austin Ventures Ill-A, L.P.	$	0.00		$	0.00	$	0.00		$	3,642,383.96	1,138,245	2,746,557	3,884,802	6.2	%
Austin Ventures Ill-B, L.P.	$	0.00		$	0.00	$	0.00		$	3,076,641.97	961,451	2,319,959	3,281,410	5.2	%
Austin Ventures V, L.P.	$	0.00		$	0.00	$	0.00		$	5,674,346.73	1,773,233	959,725	2,732,958	4.4	%
Austin Ventures V Affiliates Fund, L.P.	$	0.00		$	0.00	$	0.00		$	283,717.04	88,662	47,986	136,648	0.2	%
Capital Resources Lenders II, L.P.	$	0.00		$	0.00	$	0.00		$	10,714,231.50	3,348,197	1,178,880	4,527,077	7.2	%
Windward Capital Partners II, L.P.		($23,103,215.65	)	$	0.00		($52,431,295.74	)	$	0 00	—	—	—	0.0	%
Windward Capital L.P. II, LLC		($1,264,103.73	)	$	0.00		($2,868,804.40	)	$	0 00	—	—	—	0.0	%
Abry Partners IV, L.P.	$	0.00		$	0.00	$	0.00		$	84,150,378.02	26,296,993	3,096,356	29,393,349	46.9	%
Abry Investment Partnership, L.P.	$	0.00		$	0.00	$	0.00		$	51,950.12	16,234	1,912	18,146	0.0	%
Northwestern Mutual		0.00			0.00	$	0.00			0.00	—	1,133,328	1,133,328	1.8	%
Management		0.00			0.00	$	0.00			0.00	—	1,187,218	1,187,218	1.9	%
Other Holders		0.00			0.00	$	0.00			0.00	—	321,101	321,101	0.5	%
Heller Financial Warrant		0.00			0.00	$	0.00			0.00	—	366,626	366,626	0.6	%
New York Life Capital Partners II, L.P.	$	0.00		$	0.00	$	30,000,000.00		$	30,000,000.00	9,375,000	—	9,375,000	15.0	%
PPM America Private Equity Fund, L.P.		0.00			0.00	$	20,000,000.00		$	20,000,000.00	6,250,000	—	6,250,000	10.0	%
Total		($24,367,319.38	)	$	0.00		($5,300,100.14	)	$	157,593,649.34	49,248,015	13,359,648	62,607,663	100.0	%

⁽¹⁾ Only the figures included in the boxes in this column have been updated to reflect 6/30/04 accumalated dividends.

H-4

15 years; $2.50/share

	Original Equity Investment		Shares Owned		Percent Ownership			Accumulated Dividends As Of 6/30/03		Accumulated Value of Preferred As Of 6/30/03		Accumulated Value of Preferred As Of 6/30/04(1)		Principal
Series A
Austin Ventures III-A, L.P.	$	2,168,400		2,713,213		20.3	%	$	1,473,983.96	$	3,642,383.96	$	3,642,383.96
Austin Ventures III-B, L.P.	$	1,831,600		2,291,792		17.2	%	$	1,245,041.97	$	3,076,641.97	$	3,076,641.97
Total	$	4,000,000		5,005,005		37.5	%	$	2,719,025.93	$	6,719,025.93	$	6,719,025.93
Series B
Austin Ventures V, L.P.	$	3,809,524		959,725		7.2	%	$	1,864,822.73	$	5,674,346.73	$	5,674,346.73
Austin Ventures V Affiliates Fund, L.P.	$	190,476		47,986		0.4	%	$	93,241.04	$	283,717.04	$	283,717.04
Capital Resources Lenders II, L.P.	$	1,000,000		251,927		1.9	%	$	489,515.94	$	1,489,515.94	$	1,489,515.94
Total	$	5,000,000		1,259,638		9.4	%	$	2,447,579.71	$	7,447,579.71	$	7,447,579.71
Series C
Windward Capital Partners II, L.P.	$	24,888,237.87						$	14,442,711.66	$	39,330,949.53	$	45,137,262.98		($24,888,237.87	)
Windward Capital L.P. II, LLC	$	1,361,770.64						$	790,239.18	$	2,152,009.82	$	2,469,704.76		($1,361,770.64	)
Capital Resources Lenders II, L.P.	$	1,499,991.49		—		0. 00	%	$	870,449.11	$	2,370,440.60	$	2,370,440.60
Total	$	27,750,000.00		—		0. 00	%	$	16,103,399.95	$	43,853,399.95	$	49,977,408.34		($26,250,008.51	)
Series C-1
Windward Capital Partners II, L.P.	$	4,439,842.55						$	1,818,395.09	$	6,258,237.64	$	7,294,032.76		($4,439,842.22	)
Windward Capital L.P. II, LLC	$	242,930.03						$	99,495.14	$	342,425.17	$	399,099.64		($242,930.03	)
Capital Resources Lenders II, L.P.	$	267,581.37						$	109,591.43	$	377,172.80	$	377,172.80
Total	$	4,950,353.95						$	2,027,481.66	$	6,977,835.61	$	8,070,305.20		($4,682,772.25	)
Series D
Abry Partners IV, L.P.	$	64,959,900.00		3,096,356		23.2	%	$	19,190,478.02	$	84,150,378.02	$	84,150,378.02
Abry Investment Partnership, L.P.	$	40,100.00		1,912		0.0	%	$	11,850.12	$	51,950.12	$	51,950.12
Capital Resources Lenders II, L.P.	$	5,000,000.00		238,328		1.8	%	$	1,477,102.16	$	6,477,102.16	$	6,477,102.16
Total	$	70,000,000.00		3,336,596		25.0	%	$	20,679,430.30	$	90,679,430.30	$	90,679,430.30
Sub Debt
Austin Ventures III-A, L.P.				33,344		0.2	%
Austin Ventures III-B, L.P.				28,167		0.2	%
Capital Resources Lenders II, L.P.				688,625		5.2	%
Northwestern Mutual				1,133,328		8.5	%
Total				1,883,464		14.1	%
Other
Management				1,187,218		8.9	%
Other Holders				321,101		2.4	%
Heller Financial Warrant				366,626		2.7	%
New York Life Capital Partners II, L.P.														$	30,000,000.00
PPM America Private Equity Fund, L.P.														$	20,000,000.00
Total		111,700,353.95		13,359,648		100. 00	%	$	43,976,917.55	$	155,677,271.50	$	162,893,749.48	$	19,067,219.24
Total By Sponsor
Austin Ventures III-A, L.P.	$	2,168,400.00		2,746,557		20.6	%	$	1,473,983.96	$	3,642,383.96	$	3,642,383.96	$	0.00
Austin Ventures III-B, L.P.	$	1,831,600.00		2,319,959		17.4	%	$	1,245,041.97	$	3,076,641.97	$	3,076,641.97	$	0.00
Austin Ventures V, L.P.	$	3,809,524.00		959,725		7.2	%	$	1,864,822.73	$	5,674,346.73	$	5,674,346.73	$	0.00
Austin Ventures V Affiliates Fund, L.P.	$	190,476.00		47,986		0.4	%	$	93,241.04	$	283,717.04	$	283,717.04	$	0.00
Capital Resources Lenders II, L.P.	$	7,767,572.86		1,178,880		8.8	%	$	2,946,658.64	$	10,714,231.50	$	10,714,231.50	$	0.00
Windward Capital Partners II, L.P.	$	29,328,080.42		—		0.0	%	$	16,261,106.75	$	45,589,187.17	$	52,431,295.74	($	29,328,080.09	)
Windward Capital L.P. II, LLC	$	1,604,700.67		—		0.0	%	$	889,734.32	$	2,494,434.99	$	2,868,804.40	($	1,604,700.67	)
Abry Partners IV, L.P.	$	64,959,900.00		3,096,356		23.2	%	$	19,190,478.02	$	84,150,378.02	$	84,150,378.02	$	0.00
Abry Investment Partnership, L.P.	$	40,100.00		1,912		0.0	%	$	11,850.12	$	51,950.12	$	51,950.12	$	0.00
Northwestern Mutual	$	0.00		1,133,328		8.5	%	$	0.00	$	0.00	$	0.00		0.00
Management	$	0.00		1,187,218		8.9	%	$	0.00	$	0.00	$	0.00		0.00
Other Holders	$	0.00		321,101		2.4	%	$	0.00	$	0.00	$	0.00		0.00
Heller Financial Warrant	$	0.00		366,626		2.7	%	$	0.00	$	0.00	$	0.00		0.00
New York Life Capital Partners II, L.P.	$	—	$	—	$	—		$	—	$	—	$	—	$	30,000,000.00
PPM America Private Equity Fund, L.P.	$	0.00		—		0.0	%	$	0.00	$	0.00	$	0.00	$	20,000,000.00
Total	$	111,700,353.95		13,359,648		100.0	%	$	43,976,917.55	$	155,677,271.50	$	162,893,749.48	$	19,067,219.24

	Restructuring Dividends		Equity		Total Adjustments		Adjusted Accumulated Value of Preferred As Of 6/30/04(1)		New Preferred Converted Shares at Closina	New Common Converted Shares at Closinq	New Total Ownership at Closinq
Series A
Austin Ventures III-A, L.P.					$	0.00	$	3,642,383.96	1,456,954	2,713,213	4,170,167
Austin Ventures III-B, L.P.					$	0.00	$	3,076,641.97	1,230,657	2,291,792	3,522,449
Total					$	0.00	$	6,719,025.93	2,687,610	5,005,005	7,692,615
Series B
Austin Ventures V, L.P.					$	0.00	$	5,674,346.73	2,269,739	959,725	3,229,464
Austin Ventures V Affiliates Fund, L.P.					$	0.00	$	283,717.04	113,487	47,986	161,473
Capital Resources Lenders II, L.P.					$	0.00	$	1,489,515.94	595,806	251,927	847,733
Total					$	0.00	$	7,447,579.71	2,979,032	1,259,638	4,238,670
Series C
Windward Capital Partners II, L.P.	($	20,249,025.11)			($	45,137,262.98)				0	0
Windward Capital L.P. II, LLC	($	1,107,934.12)			($	2,469,704.76)				0	0
Capital Resources Lenders II, L.P.					$	0.00	$	2,370,440.60	948,176	0	948,176
Total	($	21,356,959.23)			($	47,606,967.74)	$	2,370,440.60	948,176	0	948,176
Series C-1
Windward Capital Partners II, L.P.	($	2,854,190.54)			($	7,294,032.76)				0	0
Windward Capital L.P. II, LLC	($	156,169.61)			($	399,099.64)				0	0
Capital Resources Lenders II, L.P.					$	0.00	$	377,172.80	150,869	0	150,869
Total	($	3,010,360.15)			($	7,693,132.40)	$	377,172.80	150,869	0	150,869
Series D							$	0.00
Abry Partners IV, L.P.					$	0.00	$	84,150,378.02	33,660,151	3,096,356	36,756,507
Abry Investment Partnership, L.P.					$	0.00	$	51,950.12	20,780	1,912	22,692
Capital Resources Lenders II, L.P.					$	0.00	$	6,477,102.16	2,590,841	238,328	2,829,169
Total					$	0.00	$	90,679,430.30	36,271,772	3,336,596	39,608,368
Sub Debt
Austin Ventures III-A, L.P.										33,344	33,344
Austin Ventures III-B, L.P.										28,167	28,167
Capital Resources Lenders II, L.P.										688,625	688,625
Northwestern Mutual										1,133,328	1,133,328
Total										1,883,464	1,883,464
Other
Management										1,187,218	1,187,218
Other Holders										321,101	321,101
Heller Financial Warrant										366,626	366,626
New York Life Capital Partners II, L.P.					$	30,000,000.00	$	30,000,000.00	12,000,000	0	12,000,000
PPM America Private Equity Fund, L.P.					$	20,000,000.00	$	20,000,000.00	8,000,000	0	8,000,000
Total	($	24,367,319.38)	$	0.00	($	5,300,100.14)	$	157,593,649.34	63,037,460	13,359,648	76,397,108
Total By Sponsor
Austin Ventures III-A, L.P.	$	0.00	$	0.00	$	0.00	$	3,642,383.96	1,456,954	2,746,557	4,203,511	5.5	%
Austin Ventures III-B, L.P.	$	0.00	$	0.00	$	0.00	$	3,076,641.97	1,230,657	2,319,959	3,550,616	4.6	%
Austin Ventures V, L.P.	$	0.00	$	0.00	$	0.00	$	5,674,346.73	2,269,739	959,725	3,229,464	4.2	%
Austin Ventures V Affiliates Fund, L.P.	$	0.00	$	0.00	$	0.00	$	283,717.04	113,487	47,986	161,473	0.2	%
Capital Resources Lenders II, L.P.	$	0.00	$	0.00	$	0.00	$	10,714,231.50	4,285,693	1,178,880	5,464,573	7.2	%
Windward Capital Partners II, L.P.	($	23,103,215.65)	$	0.00	($	52,431,295.74)	$	0.00	—	—	—	0.0	%
Windward Capital L.P. II, LLC	($	1,264,103.73)	$	0.00	($	2,868,804.40)	$	0.00	—	—	—	0.0	%
Abry Partners IV, L.P.	$	0.00	$	0.00	$	0.00	$	84,150,378.02	33,660,151	3,096,356	36,756,507	48.1	%
Abry Investment Partnership, L.P.	$	0.00	$	0.00	$	0.00	$	51,950.12	20,780	1,912	22,692	0.0	%
Northwestern Mutual		0.00		0.00	$	0.00		0.00	—	1,133,328	1,133,328	1.5	%
Management		0.00		0.00	$	0.00		0.00	—	1,187,218	1,187,218	1.6	%
Other Holders		0.00		0.00	$	0.00		0.00	—	321,101	321,101	0.4	%
Heller Financial Warrant		0.00		0.00	$	0.00		0.00	—	366,626	366,626	0.5	%
New York Life Capital Partners II, L.P.	$	0.00	$	0.00	$	30,000,000.00	$	30,000,000.00	12,000,000	—	12,000,000	15.7	%
PPM America Private Equity Fund, L.P.		0.00		0.00	$	20,000,000.00	$	20,000,000.00	8,000,000	—	8,000,000	10.5	%
Total	($	24,367,319.38)	$	0.00	($	5,300,100.14)	$	157,593,649.34	63,037,460	13,359,648	76,397,108	100.0	%

⁽¹⁾ Only the figures included in the boxes in this column have been updated to reflect 6/30/04 accumulated dividends.

H-5

EX-3.1

Exhibit 3.1

AMENDED AND RESTATED

ARTICLES OF INCORPORATION

OF

MONITRONICS INTERNATIONAL, INC.

July 14, 2004

ARTICLE ONE

Monitronics International, Inc., a Texas corporation (the “Corporation”), pursuant to the provisions of Article 4.07 of the Texas Business Corporation Act (the “TBCA”), hereby adopts these Amended and Restated Articles of Incorporation which accurately copy the Articles of Incorporation of the Corporation and all amendments and restatements thereof that are in effect to date (the “Restated Articles of Incorporation”) and as further amended by such Amended and Restated Articles of Incorporation as hereinafter set forth and which contain no other changes in any provision thereof.

ARTICLE TWO

The name of the Corporation is Monitronics International, Inc.

ARTICLE THREE

The Corporation’s existing Restated Articles of Incorporation are amended by these Amended and Restated Articles of Incorporation as follows:

3A. The Amended and Restated Articles of Incorporation alter or change Article Four of the original Restated Articles of Incorporation, and the full text of the altered Article Four is as follows:

The aggregate number of shares which the Corporation shall have authority to issue is 88,947,075 shares, consisting of: 80,700,000 shares of Common Stock, $0.01 par value (“Common Stock”), (i) 80,000,000 shares of which shall be classified as Class A Common Stock, $0.01 par value (“Class A Common Stock”), and (ii) 700,000 shares of which shall be classified as Class B Common Stock, $0.01 par value (“Class B Common Stock”); and 8,247,075 shares of Series A Preferred Stock, $0.01 par value (the “Series A Preferred Stock”).

The Corporation may purchase its own shares to the extent that may be allowed by law. The Series A Preferred Stock has the voting powers, the designations, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions set forth below.

Series A Preferred Stock

Part 1. Dividends.

1A. Subject to paragraph 1E, when and as declared by the Board and to the extent permitted under the Texas Business Corporation Act the Corporation shall pay preferential dividends in cash to the holders of the Series A Preferred Stock as provided in this Section 1A. Following the Dividend Election Date, dividends on each share of the Series A Preferred Stock shall initially accrue on a daily basis (and shall accumulate annually as set forth in Section 1B) at the rate of 8% per annum up to the first anniversary of the Dividend Election Date and from and thereafter such accrual shall increase by an additional 2% per annum on each anniversary of the Dividend Election Date up to a maximum rate of 16% per annum (the “Maximum Rate”) (such rate of accrual as applicable at any given time and as further adjusted pursuant to the terms hereof, being the “Dividend Rate”), in each case of the sum of the Liquidation Value thereof plus all accumulated and unpaid dividends thereon from and including the Dividend Election Date to and including the first to occur of (i) the date on which the Liquidation Value of such share (plus all accrued and unpaid dividends thereon) is paid to the holder thereof in connection with the liquidation of the Corporation or the redemption of such share by the Corporation, or (ii) the date on which such share is otherwise acquired by the Corporation. Additionally, (A) subject to the second proviso in this sentence, at any time when the Leverage Multiple exceeds the Dividend Increase Trigger (but, in any event, only for any period of time after the Dividend Election Date) (a “Trigger Event”), the Dividend Rate shall be 2% per annum in excess of the otherwise-applicable Dividend Rate, provided that upon the date on which the Leverage Multiple no longer exceeds the Dividend Increase Trigger or such noncompliance is waived, such 2% per annum addition to the Dividend Rate shall no longer be applicable; and provided further that the otherwise-applicable Dividend Rate shall not be increased pursuant to this Paragraph 1A(ii)(A) following a Trigger Event if such Trigger Event results in an increase of the otherwise-applicable Dividend Rate pursuant to the provisions of Paragraph 4(E)(i)(A) or 4(E)(ii)(A), and (B) following a Series A Mandatory Redemption Failure and until such time as all of the shares of Series A Preferred Stock are redeemed or the consummation of a Sale of the Company, the Maximum Rate shall be the lesser of 24% and the maximum rate permitted by applicable law. Such dividends shall accrue whether or not they have been declared and whether or not there are profits, surplus or other funds of the Corporation legally available for the payment of dividends.

1B. Dividend Reference Dates. To the extent not paid on any anniversary of the Dividend Election Date (each, a “Dividend Reference Date”), all dividends which have accrued during the twelve month period ending upon that Dividend Reference Date on each share of Series A Preferred Stock outstanding shall be accumulated and shall remain accumulated dividends with respect to such share of Series A Preferred Stock until paid to the holder thereof.

1C. No Other Payments. No dividends or other distributions (whether in cash, securities or other property, other than dividends paid on shares of Common Stock and consisting solely of shares of Common Stock of the same class) shall be paid on or declared and set apart for any Common Stock or any other series or class of capital stock of the Corporation (other than Series A Preferred Stock and Permitted Senior Securities (as hereinafter defined)) at any time after the Dividend Election Date at any time when any Series A Preferred Stock is outstanding.

1D. Distribution of Partial Dividend Payments. If at any time the Corporation pays less than the total amount of dividends then accrued with respect to the Series A Preferred

2

Stock, such payment shall be distributed pro rata among the holders entitled thereto based upon the aggregate accrued but unpaid dividends on the shares of Series A Preferred Stock.

1E. Restrictions. No dividends shall be paid or declared under Paragraph 1A (i) if a Default or Event of Default has occurred and is then continuing under the Credit Agreement, the Indenture or the Subordinated Note Agreement (each an “Existing Default”) or (ii) to the extent the payment thereof would cause a Default or Event of Default under the Credit Agreement, the Indenture or the Subordinated Note Agreement to occur; provided, that if the Corporation is not permitted to pay dividends as a result of the operation of this Paragraph 1E, the Corporation shall continue to accrue dividends pursuant to Paragraph 1A, and such dividends shall be paid out of funds legally available therefore immediately after the cure or waiver of any Existing Default, but only if and to the extent that the payment of such dividends would not result in a Default or an Event of Default under the Credit Agreement, the Indenture or the Subordinated Note Agreement.

Part 2. Liquidation Preference.

2A. In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary (each, a “Liquidation Event”):

(i) If, and only if, a Dividend Election has been made and following the distribution in full of assets and funds to holders of Permitted Senior Securities as required by the terms of such securities, the holders of the Series A Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Corporation to the holders of Junior Securities by reason of their ownership thereof, an amount (the “Series A Liquidation Preference”) for each share of Series A Preferred Stock then held by them equal to the Liquidation Value plus accrued but unpaid dividends on such share of Series A Preferred Stock to the date fixed for such Liquidation Event. If upon the occurrence of a Liquidation Event, the assets and funds available to be distributed to the holders of the Series A Preferred Stock shall be insufficient to permit the payment to such holders of the full Series A Liquidation Preference, then, following the distribution in full of assets and funds to holders of Permitted Senior Securities as required by the terms of such securities, the entire assets and surplus funds of the Corporation legally available for distribution shall be distributed ratably among the holders of the Series A Preferred Stock in proportion to the Series A Liquidation Preference of the shares of Series A Preferred Stock then held by them.

(ii) Subject to the payment in full of (a) the liquidation preference of any Permitted Senior Securities outstanding, if any, and (b) the Series A Liquidation Preference, as provided in subparagraph (i) above, if a Dividend Election has been made, all remaining assets and surplus funds of the Corporation legally available for distribution shall be distributed among the holders of Common Stock ratably in proportion to the number of shares of Common Stock then held by them.

3

2B. For purposes of this Part 2, a Liquidation Event shall, at the option of (x) the holders of a majority of the outstanding shares of Series A Preferred Stock (but only if a Dividend Election has been made prior to such event) or (y) the Board (in any other event), include:

(i) a consolidation or merger of the Corporation with or into any other Corporation, or any other Person, other than a wholly-owned Subsidiary of the Corporation, excluding any transaction in which shareholders of the Corporation who hold a majority of the voting stock of the Corporation immediately prior to the transaction own a majority of the voting stock of the resulting entity immediately following the transaction (but only if the relative rights and preferences of the Series A Preferred Stock are not altered or diminished thereby except by senior or pari passu rights of the holders of any Permitted Senior Securities);

(ii) any corporate reorganization in which the Corporation shall not be the continuing or surviving entity resulting from such reorganization, excluding any transaction in which shareholders of the Corporation who hold a majority of the voting stock of the Corporation immediately prior to the transaction own a majority of the voting stock of the resulting entity immediately following such transaction and the same relative rights and preferences of the Series A Preferred Stock shall exist in the resulting entity after such transaction except as such rights and preferences are affected by senior or pari passu rights of the holders of any Permitted Senior Securities;

(iii) a sale of all or substantially all of the assets of the Corporation; or

(iv) a statutory share exchange in which any Person acquires all of the outstanding shares of each class or series of capital stock of the Corporation.

2C. Any securities to be delivered to the holders of Series A Preferred Stock pursuant to Paragraph 2A(i) above shall be valued as follows:

(i) Securities not subject to restrictions on free transferability (other than a customary lock-up the duration of which does not exceed 180 days or restrictions arising under federal or state securities or blue-sky laws):

(a) if such securities are listed on a securities exchange, the fair market value shall be deemed to be the average of the security’s closing prices on such exchange over the 20-trading-day period ending three trading days prior to such delivery or, if there have been no sales on any such exchange on any of such 20 trading days, the average of the highest bid and lowest asked prices on all such exchanges at the end of such day, or, if such securities are not so listed, the average of the representative bid and asked prices quoted on the Nasdaq National Market System (“Nasdaq NMS”) as of 4:00 P.M., New York time, or, if such securities are neither listed on a securities exchange nor quoted in the Nasdaq NMS, the average of the highest bid and lowest asked prices on such day in the domestic over-the-counter market as reported by the National Quotation Bureau Incorporated, or any similar successor organization, in each such case averaged over the 20-trading-day period ending three trading days prior to such delivery; or

(b) otherwise, the value shall be the fair market value thereof, as mutually determined by the AV Director and the ABRY Directors (both as defined in the Shareholders Agreement), or, in the absence of such agreement, by an independent appraisal paid for by the Corporation and conducted by an Appraisal Firm.

4

(ii) Securities not described in clause 2C(i) above shall be valued at an appropriate discount from the fair market value determined as above in subparagraph (i)(a) or (i)(b), as applicable, to reflect the approximate fair market value thereof, as mutually determined by the AV Director and the ABRY Directors, or, in the absence of such agreement, by an independent appraisal paid for by the Corporation and conducted by an Appraisal Firm.

(iii) Whenever reference is made in these Articles of Incorporation to determinations being made mutually by the AV Director and the ABRY Directors, or language to a similar effect, the determination shall be made with the ABRY Directors having one (1) vote collectively in such determination and the AV Director having one (1) vote in such determination.

2D. If such Liquidation Event will occur during a Dividend Election Period: (i) the Corporation shall give each holder of record of Series A Preferred Stock written notice of any impending transaction described in Paragraph 2B above not later than the earlier of 20 days prior to the shareholders meeting called to approve such transaction and 20 days prior to the closing of such transaction, and shall also notify such holders in writing of the final approval of such transaction, (ii) the first of said notices shall describe the material terms and conditions of the contemplated transaction, and the Corporation shall thereafter give such holders prompt notice of any material changes to such terms and conditions, and (iii) the Liquidation Event shall in no event take place sooner than 20 days after the mailing by the Corporation of the first notice provided in clause (i) or sooner than 20 days after the mailing by the Corporation of any notice of material changes provided for herein; provided, however, that such periods may be shortened upon the written consent of the holders of a majority of the outstanding shares of Series A Preferred Stock.

Part 3. Redemptions.

3A. Subject to Paragraph 3I, on the date of the closing of a Qualified Public Offering if a Dividend Election has been made (the “Series A Public Offering Mandatory Redemption Date”), the Corporation shall redeem (the “Series A Public Offering Mandatory Redemption”) all outstanding shares of Series A Preferred Stock at a price per share equal to the Series A Redemption Price. Notwithstanding anything else to the contrary contained herein, the Corporation shall not effect a Qualified Public Offering at any time when the Series A Preferred Stock is outstanding and a Dividend Election has been made unless it concurrently effects the redemption required by this Paragraph 3A.

3B. Subject to Paragraph 3I, on June 30, 2008 (if a Dividend Election has been made by such date), or on the 30th day following delivery of a Dividend Election during the thirty (30) day Dividend Election Period that begins on the date of the EBITDA Determination for the quarterly period ending June 30, 2008 (if a Dividend Election has not been made by June 30, 2008) (June 30, 2008 or such 30th day being the “Series A Mandatory Redemption Date”), the Corporation shall redeem (the “Series A Mandatory Redemption”) all outstanding shares of Series A Preferred Stock at a price per share equal to the Series A Redemption Price. If the Series A Mandatory Redemption Date is not a business day, such redemption shall be made on the immediately succeeding business day.

5

3C. Subject to Paragraph 3I, the Corporation may at any time and from time to time, following the Dividend Election Date, redeem all or at least fifty percent of the outstanding shares of Series A Preferred Stock; provided that if the Corporation redeems less than all of the shares of Series A Preferred Stock then outstanding it shall not be permitted to redeem additional shares of Series A Preferred Stock unless in such additional redemption it redeems all shares of Series A Preferred Stock then outstanding. Upon the date of any such redemption (any such date a “Series A Optional Redemption Date”), the Corporation shall pay a price per share equal to the Series A Redemption Price. Redemptions made pursuant to this Paragraph 3C shall not relieve the Corporation of its obligation to redeem Series A Preferred Stock on the Series A Mandatory Redemption Date or the Series A Public Offering Mandatory Redemption Date.

3D. The holders of Series A Preferred Stock shall be entitled to receive from the Corporation on the Series A Public Offering Mandatory Redemption Date, the Series A Mandatory Redemption Date or any Series A Optional Redemption Date, in each case if a Dividend Election has been made prior to such date, an amount in cash for each share of Series A Preferred Stock to be redeemed equal to the Liquidation Value of such share, plus any accrued but unpaid dividends on such share of Series A Preferred Stock to and including the applicable redemption date (the “Series A Redemption Price”).

3E. If the Corporation fails for any reason (including because of restrictions under agreements with other Persons, including restrictions in the agreements pursuant to which Permitted Senior Securities were issued or by the terms of such securities themselves, or a lack of sufficient funds of the Corporation legally available for redemption) to redeem all outstanding shares of Series A Preferred Stock on the Series A Mandatory Redemption Date, the sole remedies of the holders of Series A Preferred Stock shall be the increase in the Maximum Rate set forth in Paragraph 1A and the rights granted to the holders of Series A Preferred Stock pursuant to Part 3 of the Shareholders Agreement. All other terms contained in these Articles of Incorporation will remain in full force and effect.

3F. No holder of a share of Series A Preferred Stock will be entitled to any dividends accruing after the date on which the Series A Redemption Price with respect to such share is paid. On such date, all rights of the holder of such share of Series A Preferred Stock will cease, and such share of Series A Preferred Stock will not be deemed to be outstanding.

3G. Any shares of Series A Preferred Stock that are redeemed or otherwise acquired by the Corporation will be cancelled and will not be reissued, sold or transferred. If fewer than the total number of shares of Series A Preferred Stock represented by any certificate are redeemed, a new certificate representing the number of unredeemed shares of Series A Preferred Stock will be issued to the holder thereof without cost to such holder within three (3) business days after surrender of the certificate representing the redeemed shares.

3H. Neither the Corporation nor any Subsidiary will redeem, repurchase or otherwise acquire any shares of Series A Preferred Stock except as expressly authorized herein or pursuant to a purchase offer made pro-rata to all holders of shares of Series A Preferred Stock based on the number of shares of Series A Preferred Stock owned by each such holder.

6

3I. Notwithstanding anything in this Part 3 to the contrary, neither the Corporation nor any Subsidiary will redeem, repurchase or otherwise acquire any shares of Series A Preferred Stock or any other series or class of capital stock of the Corporation (a) prior to the date that is 91 days after the earlier of the stated maturity date of any of the Notes or the first date on which no Notes are outstanding, (b) prior to the date that is 91 days after the earlier of (i) the stated maturity of all of the loans under the Credit Agreement or (ii) the payment in full of all obligations (including obligations under letters of credit) and the termination of the commitments of the various lenders under the Credit Agreement, or (c) if redemption at such time is prohibited under the Credit Agreement. If on the date that the holders of any series or class of capital stock of the Corporation could elect to require the Corporation to effect the redemption of capital stock of the Corporation, any Notes or obligations under the Credit Agreement are outstanding, or the redemption of capital stock of the Corporation is prohibited under the Credit Agreement, the time for giving such notice shall be extended until 100 days following the date (the “Extension Date”) upon which no Notes or obligations under the Credit Agreement remain outstanding and the redemption of capital stock of the Corporation is no longer prohibited under the Credit Agreement.

Part 4. Voting Rights.

4A. Except as otherwise provided in these Articles of Incorporation or the Texas Business Corporation Act, the holders of Series A Preferred Stock will have no right to vote their shares of Series A Preferred Stock on any matters to be voted on by the shareholders of the Corporation; provided that prior to the Dividend Election Date, the holders of Series A Preferred Stock shall be entitled to vote together with the holders of Class A Common Stock (as a single, combined class) on all matters submitted to a vote of the holders of Class A Common Stock and, in any such vote, each holder of a share of Series A Preferred Stock shall be entitled to that number of votes equal to the number of shares of Class A Common Stock into which such share of Series A Preferred Stock is then convertible.

4B. On any matter specifically requiring the vote of only the holders of the Series A Preferred Stock voting together as a single class pursuant to these Articles of Incorporation, each holder of Series A Preferred Stock will be entitled to one vote per share of Series A Preferred Stock held by such holder.

4C. At any time after the Dividend Election Date when any Series A Preferred Stock is outstanding, without first obtaining the approval or consent of the holders of a majority of the outstanding shares of Series A Preferred Stock voting together as a separate class, the Corporation shall not:

(i) change the nature of the business or operations of the Corporation or any of its Subsidiaries or Control Affiliates, or enter into or allow any of its Subsidiaries or Control Affiliates to enter into a line of business other than the purchase of security alarm and other monitoring contracts, the sale, servicing, installation and/or monitoring of security alarms and other monitoring systems, and ancillary businesses acquired by the Corporation or any Subsidiary or Control Affiliate that do not constitute in the aggregate more than 5% of the Revenues, Assets or EBITDA (LQA), as determined on any Measurement Date;

7

(ii) authorize or issue, or obligate itself to issue, any Company Security (including any Company Security convertible into or exercisable or exchangeable for any Company Security) that ranks senior to, or pari passu with, the Series A Preferred Stock as to dividend or redemption rights or liquidation preferences or issue or obligate itself to issue, or allow any of its Subsidiaries to issue or obligate itself to issue, any Triggering Funded Debt, unless: (a) in the case of any such Company Securities only, such Company Securities are issued at no less than Fair Market Value, (b) such Company Securities or Triggering Funded Debt is issued for cash (provided, however, that such Company Securities may be issued as non-cash consideration for the acquisition of assets or Equity Securities of another Person, so long as such acquisition or issuance of Company Securities does not result in a breach of any other provision of these Articles of Incorporation), (c) no Company Securities outstanding immediately after the Recapitalization are converted into or exchanged for such Company Securities or Triggering Funded Debt, (d) such Company Securities or Triggering Funded Debt, as the case may be, do not contain terms and conditions that prohibit the exercise of the rights of Austin Ventures or the holders of Series A Preferred Stock pursuant to Part 1 or Part 3 of the Shareholders Agreement, and (e) after such issuance and the application of the proceeds of such issuance, either (1) the Debt Amount does not exceed the product of the Permitted Leverage Multiple multiplied by EBITDA (LQA) or (2) as a result of such issuance (after giving effect to the application of the proceeds thereof), the Leverage Multiple does not increase (and all Company Securities issued in compliance with this subparagraph 4C(ii) being the “Permitted Senior Securities”));

(iii) issue, or obligate itself to issue, any Series A Preferred Stock, other than to holders of Series A Preferred Stock outstanding immediately after the Recapitalization and their permitted transferees;

(iv) redeem, purchase or otherwise acquire (or pay into or set aside for a sinking fund for such purpose), or allow any of its Subsidiaries or Control Affiliates to redeem, purchase or otherwise acquire, any Company Securities (including securities convertible into or exercisable or exchangeable into Company Securities) that rank junior to the Series A Preferred Stock as to dividend or redemption rights or liquidation preferences, or that are pari passu with or senior to the Series A Preferred Stock as to dividend or redemption rights or liquidation preferences and that are not Permitted Senior Securities, excluding in each case redemptions of Company Securities issued to (A) employees or the Hull Family Partnership, L.P. that are otherwise required under arrangements in effect on the date of the Recapitalization, or (B) employees subsequent to the date of the Recapitalization pursuant to and in accordance with the terms of a stock restriction agreement; provided that the aggregate amount of such redemptions in any fiscal year pursuant to this clause (B) shall not exceed $50,000;

(v) declare or pay a dividend or distribution of any kind on any Company Security that ranks junior to the Series A Preferred Stock as to dividend or redemption rights or liquidation preferences, or that is pari passu with or senior to the Series A Preferred Stock as to dividend or redemption rights or liquidation preferences and that are not Permitted Senior Securities;

(vi) other than provisions in the definitive documentation relating to any Funded Debt or Permitted Senior Securities or the terms of such Funded Debt or Permitted Senior Securities themselves (which shall not, in either case, prohibit Austin Ventures or the

8

holders of Series A Preferred Stock from exercising their rights under Part 1 or Part 3 of the Shareholders Agreement), enter into, or allow any of its Subsidiaries or Control Affiliates to enter into, any financing transaction, agreement to issue Company Securities or other arrangement with terms and conditions that prohibit the Corporation from performing its obligations in respect of the Series A Preferred Stock;

(vii) enter into, or allow any of its Subsidiaries or Control Affiliates to enter into, any financing transaction, agreement to issue Company Securities or other arrangement with terms and conditions that prohibit the exercise of the rights of Austin Ventures or the holders of Series A Preferred Stock pursuant to Part 1 or Part 3 of the Shareholders Agreement;

(viii) acquire, or permit any Subsidiary or any Control Affiliate to acquire, any Equity Securities or other interest in any Person or business (whether by a purchase of assets, purchase of Equity Securities, merger or otherwise), or enter into any joint venture, in either case involving aggregate consideration payable by the Corporation and its Subsidiaries and Control Affiliates (including, without limitation, the assumption by one or more of them of liabilities whether direct or indirect) exceeding $100,000,000 in any one transaction or series of related transactions; provided, however, that this subparagraph (viii) shall not preclude the purchase of security alarm contracts in the ordinary course of business;

(ix) make any amendment to these Articles of Incorporation or the Corporation’s bylaws, or file any resolution of the Board with the Texas Secretary of State, containing any provisions which (a) would increase the number of authorized shares of the Series A Preferred Stock, or (b) would adversely affect or otherwise impair the rights or the relative preferences and priorities of the holders of the Series A Preferred Stock under these Articles of Incorporation or the Corporation’s bylaws, other than any such amendment or resolution to establish or amend the terms of Permitted Senior Securities that does not otherwise violate any of the terms of these Articles of Incorporation;

(x) enter into, amend, modify or supplement, or permit any Subsidiary or Control Affiliate to enter into, amend, modify or supplement, any agreement, transaction, commitment or arrangement (including, without limitation, any agreement, transaction, commitment or arrangement whereby any fees or other consideration would be paid) with any of its or any such Subsidiary’s or Control Affiliate’s officers, directors, employees, stockholders or Affiliates or with any individual related by blood, marriage or adoption to any such individual or with any entity in which any such Person owns a beneficial interest, except for (a) customary employment arrangements and benefit programs on reasonable terms (provided, however, that no such arrangements or programs shall be with ABRY or any Affiliate of ABRY), (b) financing arrangements with any such Person(s) if (i) such financing results in the issuance of Company Securities or securities of any Subsidiary or Control Affiliate, as the case may be, that are either (A) junior as to dividend and redemption rights and liquidation preferences to the Series A Preferred Stock or (B) Permitted Senior Securities, (ii) such Company Securities or securities of such Subsidiary or Control Affiliate, as the case may be, are issued either at no less than Fair Market Value for cash or upon the conversion, exercise or exchange in accordance with their terms of Company Securities previously issued in accordance with Paragraph 1G(j) of the Shareholders Agreement or this Paragraph 4C(x), and (iii) such financing does not include the

9

payment of any fees to ABRY and/or Affiliates of ABRY, or (c) so long as ABRY and its Affiliates control the Corporation, transactions with officers, directors, employees, stockholders or Affiliates of the Corporation or any of its Subsidiaries or with any individual related by blood, marriage or adoption to any such individual or with any entity in which any such Person owns a beneficial interest that are not ABRY or an Affiliate of ABRY on such terms as are approved by ABRY; or

(xi) establish, acquire or own, or allow any Subsidiary or Control Affiliate to establish, acquire or own, any Equity Securities (or securities convertible into, or exercisable or exchangeable for, Equity Securities) of ABRY or any Affiliate of ABRY; provided that the Company, a Subsidiary or a Control Affiliate may establish, acquire or own any Equity Securities of any Subsidiary or Control Affiliate that is deemed to be an Affiliate of ABRY solely by virtue of ABRY’s ownership of stock of, and control of, the Corporation.

The rights set forth in this Paragraph 4C shall terminate upon the consummation of a Qualified Public Offering; provided that the Corporation complies with its obligations pursuant to Paragraph 3A hereof.

4D. For purposes of determining compliance with subparagraph 4C(ii) and applying Paragraph 4E, and for purposes of determining the Exchange Value as of the Dividend Election Date or any other date, the relevant Leverage Multiple and/or Exchange Value will be determined in accordance with the following procedures:

(i) Upon or prior to the incurrence of any Triggering Funded Debt or the issuance of any Company Securities that rank senior to or pari passu with the Series A Preferred Stock as to dividend or redemption rights or liquidation preferences, that the Corporation believes has or will result in the occurrence of Leverage Acceleration Event or following the receipt by the Corporation of notice from the holders of a majority of the Series A Preferred Stock that such holders believe a Leverage Acceleration Event has occurred, the Corporation shall deliver to the holders of Series A Preferred Stock a notice setting forth the Corporation’s determination of the Leverage Multiple after giving effect to such issuance and the application of the proceeds thereof. After the end of the fiscal quarter ending on each of June 30, 2005, December 31, 2006 and June 30, 2008 (unless a Dividend Election theretofore has been made), or after a Dividend Election is made (or a re-computation of the Exchange Value is required) pursuant to Paragraph 4E, the Corporation shall deliver to the holders of Series A Preferred Stock a notice setting forth the Corporation’s determination of the Exchange Value, which notice shall contain the Corporation’s calculations of all items necessary to calculate the Leverage Multiple and/or the Exchange Value and reasonable back-up and supporting data.

(ii) A designee of the holders of a majority of the outstanding shares of Series A Preferred Stock (the “Designee”) shall have the right to review the books and records of the Corporation, including the right to engage independent auditors to assist in such review, during the period of twenty (20) days subsequent to the receipt of such notice from the Corporation (the “Objection Period”). If, during the Objection Period, the Designee does not deliver to the Corporation an Objection Statement (as that term is defined below), then the Leverage Multiple or Exchange Value, as applicable, shall be deemed to be the amount set forth in the Corporation’s notice. In any event, the cost of any independent auditors engaged by the

10

Designee for such review shall be borne by the holders of Series A Preferred Stock. The Corporation shall assist in all reasonable requests of the Designee in conducting such review, including making available to meet with the Designee members of the Corporation’s management who are familiar with the Corporation’s financial condition and results of operations that are relevant to the computations to be made pursuant to this Paragraph 4D and any independent auditors.

(iii) The Designee may object to the Corporation’s determination of the Leverage Multiple or the Exchange Value, as applicable, by delivering to the Corporation during the Objection Period a statement (the “Objection Statement”) indicating the basis for its objections and the Designee’s determination of the Leverage Multiple or the Exchange Value, as applicable, in which event the Designee and the Corporation shall meet and confer in an effort to resolve such disagreement in good faith during the period of 30 days following the Corporation’s receipt of the Objection Statement. If the Corporation and the Designee resolve such disagreement and execute and deliver a written agreement setting forth such resolution, then the Leverage Multiple or the Exchange Value, as applicable, shall be deemed to be the amount set forth in such agreement.

(iv) If the Designee and the Corporation do not enter into such an agreement on or prior to the 30th day after the Objection Statement is given to the Corporation, then the Corporation and the Designee will (a) retain a firm of certified public accountants chosen randomly by lot from among the “big four” accounting firms other than the firm(s) regularly engaged by the Corporation, ABRY and Austin Ventures (the “Independent Accounting Firm”) to determine the Leverage Multiple or the Exchange Value, as applicable, as soon as practicable and (b) submit to such Independent Accounting Firm at the time of such retention the Corporation’s final determination of the Leverage Multiple or the Exchange Value, as the case may be (the “Corporation Assertion”), in the case of the Corporation, and the Designee’s final determination of the Leverage Multiple or the Exchange Value, as the case may be (the “Designee Assertion”), in the case of the Designee. The Independent Accounting Firm shall only decide the specific items under dispute by the parties and shall be instructed to determine the Leverage Multiple or the Exchange Value, as applicable, in accordance with the principles set forth in these Articles of Incorporation, which determination must be an amount that is not greater than the greater of, and not less than the lesser of, the Corporation Assertion and the Designee Assertion. The Leverage Multiple or the Exchange Value, as applicable, as determined by the Independent Accounting Firm will be conclusive and binding upon the Corporation and the holders of Series A Preferred Stock. As between the Corporation and the holders of Series A Preferred Stock the party (or the holders of the Series A Preferred Stock, in the case of the Designee) whose assertion as to the Leverage Multiple or the Exchange Value, as applicable, is the greater of the two assertions (such amount, the “Greater Assertion”), shall be responsible for paying a portion of the fees and expenses of the Independent Accounting Firm equal to the total fees and expenses of such Independent Accounting Firm multiplied by a fraction, the numerator of which is equal to (A) the amount of the Greater Assertion less (B) the amount of the Leverage Multiple or the Exchange Value, as applicable, determined by the Independent Accounting Firm and the denominator of which is equal to (X) the amount of the Greater Assertion less (Y) the amount of the other assertion, and the other party (or the holders of the Series A Preferred Stock, in the case of the Designee) shall be responsible for paying the remainder of such fees and expenses.

11

4E. The Corporation shall give notice to the holders of the outstanding shares of Series A Preferred Stock in advance of, or following, any Acceleration Event. Following any Acceleration Event, the following shall apply:

(i) If a Dividend Election has not been previously made, the holders of a majority of the outstanding shares of Series A Preferred Stock shall have the right to make a Dividend Election within the Dividend Election Period with respect to such Acceleration Event, in which event the Exchange Value shall be calculated as of the date of such Dividend Election. If the holders of a majority of the outstanding shares of Series A Preferred Stock make a Dividend Election within such Dividend Election Period with respect to such Acceleration Event, then (A) the Dividend Rate shall increase by an additional 3% per annum above the then-applicable Dividend Rate, and by an additional 1% per annum at the end of each 90-day period thereafter, up to a maximum rate of 24%; provided that, if such Acceleration Event is a Leverage Acceleration Event, the Dividend Rate shall not be subject to any further increases pursuant to this subparagraph 4E(i) by reason of such Leverage Acceleration Event from the first date upon which the Leverage Multiple no longer exceeds the Permitted Leverage Multiple in effect immediately prior to such Leverage Acceleration Event, subject to the following sentence, (B) the Exchange Value for the Series A Preferred Stock as of the Dividend Election Date shall be computed using the applicable multiple described in clause (ii) of the definition of EBITDA Multiple, and (C) the Dividend Increase Trigger shall increase as described in Paragraph 4E(iii) below. If the holders of a majority of the outstanding shares of Series A Preferred Stock make a Dividend Election within such Dividend Election Period and the Corporation redeems the Series A Preferred Stock pursuant to Part 3 hereof within thirty (30) days following the later of (X) the date of the Acceleration Event and (Y) the date upon which the Series A Redemption Price is finally determined following the making of such Dividend Election, then the Series A Redemption Price shall be calculated as if the Acceleration Event (and any related incurrence of Funded Debt and the application of any proceeds thereof) had never occurred and the EBITDA Multiple for purposes of calculating the Series A Redemption Price shall be the multiple described in clause (i) of the definition of EBITDA Multiple, and the Dividend Rate will not be deemed to have been increased pursuant to the immediately preceding sentence. If the holders of a majority of the Series A Preferred Stock do not make a Dividend Election within the Dividend Election Period with respect to such Acceleration Event, then all breaches of Paragraph 4C which resulted in such Acceleration Event shall be deemed to be waived by the holders of the Series A Preferred Stock, the Dividend Rate shall not be increased as a result of such Acceleration Event, and, if such Acceleration Event is a Leverage Acceleration Event, the Dividend Increase Trigger shall increase as described in Paragraph 4E(iii) below.

(ii) If the holders of a majority of the outstanding shares of Series A Preferred Stock have previously made a Dividend Election, then upon such Acceleration Event, (A) the Dividend Rate shall increase by an additional 3% per annum above the then-applicable Dividend Rate, and by an additional 1% per annum at the end of each 90-day period thereafter, up to a maximum rate of 24%; provided that if such Acceleration Event is a Leverage Acceleration Event, the Dividend Rate shall not be subject to any further increases pursuant to this subparagraph 4E(ii) by reason of such Leverage Acceleration Event from the first date upon which the Leverage Multiple no longer exceeds the Permitted Leverage Multiple in effect immediately prior to such Leverage Acceleration Event, (B) the Exchange Value for the Series A Preferred Stock as of the Dividend Election Date shall be recomputed using the applicable

12

multiple described in clause (iii) of the definition of EBITDA Multiple (provided that no dividends that have accrued on the Series A Preferred Stock prior to the date of such Acceleration Event shall be recomputed and dividends that accrue on the Series A Preferred Stock following the date of such Acceleration Event shall accrue on the Liquidation Value based on such recomputed Exchange Value), and (C) the Dividend Increase Trigger shall increase as described in Paragraph 4(E)(iii) below, in each case subject to the following sentence. If the Corporation redeems the Series A Preferred Stock pursuant to Paragraph 3C hereof within thirty (30) days following the later of (X) the date of the Acceleration Event and (Y) the date upon which such recomputed Exchange Value is finally determined, then the Series A Redemption Price shall be calculated as if such Acceleration Event (and any related incurrence of Funded Debt and the application of any proceeds thereof) had never occurred, the EBITDA Multiple for purposes of calculating the Series A Redemption Price shall be the multiple described in clause (iv) of the definition of EBITDA Multiple and the Dividend Rate will not be deemed to have been increased pursuant to clause (ii)(A) above.

(iii) In addition to the remedies and effects described in Paragraphs 4E(i) and (ii) above, upon the occurrence of a Leverage Acceleration Event, the Dividend Increase Trigger shall be increased as of the date of such Leverage Acceleration Event to the Leverage Multiple that exists on the date of issuance of any Company Securities or Triggering Funded Debt that resulted in such Acceleration Event, and all such Company Securities shall be Permitted Senior Securities.

4F. The adjustments, rights and remedies set forth in Paragraph 4E above constitute the sole remedy and right of recovery against the Corporation for any and all claims by the holders of Series A Preferred Stock in connection with any breaches of Paragraph 4C (other than Paragraph 4C(ix)) above or Paragraph 1G (other than Paragraph 1G(i)) of the Shareholders Agreement, and each holder of Series A Preferred Stock hereby waives all other remedies, whether at law or in equity in connection with any such breach. Subject to the adjustments, rights and remedies set forth in Paragraph 4E above, upon delivery of the notice required by the initial sentence of Paragraph 4E, all breaches of Paragraph 4C (other than Paragraph 4C(ix)) described in such notice or Paragraph 1G (other than Paragraph 1G(i)) of the Shareholders Agreement shall be deemed to be waived by the holders of Series A Preferred Stock and any Company Securities issued in breach of Paragraph 4C(ii) described in such notice will constitute Permitted Senior Securities. All other terms contained in these Articles of Incorporation will remain in full force and effect.

4G. Upon a Tax Valuation Event, (i) if a Dividend Election has been made, then (A) the Exchange Value and Liquidation Value for the Series A Preferred Stock as of the Dividend Election Date shall be recomputed as set forth in the Recapitalization Agreement, and (B) all dividends that have accrued on the Series A Preferred Stock prior to the date of such Tax Valuation Event and dividends that accrue on the Series A Preferred Stock following the date of such Tax Valuation Event shall accrue or shall be deemed to have accrued on the Liquidation Value based on such recomputed Exchange Value, and (ii) holders of the Recapitalization Common Stock held by each of ABRY, PPM, NYLife and Capital Resources Lenders II, L.P. on the date hereof shall be entitled to receive additional shares of Class A Common Stock pursuant to the Recapitalization Agreement. This Paragraph 4G shall terminate upon the earlier of (i) the consummation of an Initial Public Offering and (ii) the consummation of a Sale of the Company

13

unless, in each case, the Internal Revenue Service has notified the Corporation or any Subsidiary of its intention to conduct an audit which could result in a Tax Valuation Event prior to the consummation of the events described in subsection (i) and (ii) of this sentence.

Part 5. Conversion.

The holders of Series A Preferred Stock shall have conversion rights as follows (the “Conversion Rights”):

5A. Right to Convert. Prior to the delivery of a Dividend Election, each share of Series A Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share, at the office of the Corporation or any transfer agent for such share, into one share (the “Series A Conversion Factor”) of Class A Common Stock (or Common Stock of the Corporation at such time as the Corporation shall have only one class of Common Stock).

5B. Automatic Conversion. Each share of Series A Preferred Stock shall automatically be converted, as described in Paragraph 5A above, into the applicable number of fully paid and non-assessable shares of Class A Common Stock immediately prior to (i) a Qualified Public Offering, (ii) a Liquidation Event, (iii) a Sale of the Company, (iv) the expiration of the Dividend Election Period that begins on the date of the EBITDA Determination for the quarterly period ending June 30, 2008 or (v) the election of the holders of a majority of the Series A Preferred Stock, in each case if a Dividend Election has not been made prior to such event.

5C. Mechanics of Conversion. Before any holder of Series A Preferred Stock shall be entitled to convert shares of Series A Preferred Stock into shares of Class A Common Stock, such holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for such shares, and shall give written notice to the Corporation at such office that such holder elects to convert the same and shall state therein the name or names in which the certificate or certificates for shares of Class A Common Stock are to be issued. The Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Series A Preferred Stock a certificate or certificates for the number of shares of Class A Common Stock to which the holder shall be entitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of surrender of the shares of Series A Preferred Stock to be converted, and the Person or Persons entitled to receive the shares of Class A Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Class A Common Stock on such date. In the event of an automatic conversion of the Series A Preferred Stock, the conversion of the shares of Series A Preferred Stock shall be treated as having been made effective as of the date of the event resulting in the automatic conversion.

5D. Reservation of Common Stock. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Class A Common Stock, solely for the purpose of effecting the conversion of the Series A Preferred Stock, such number of its shares of Class A Common Stock as shall from time to time be sufficient to effect the conversion of all issued and outstanding Series A Preferred Stock; and if at any time the number of

14

authorized but unissued shares of Class A Common Stock shall not be sufficient to effect the conversion of all then outstanding Series A Preferred Stock, in addition to such other remedies as shall be available to the holders of such Series A Preferred Stock, the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Class A Common Stock to such number of shares as shall be sufficient for such purposes.

5E. Adjustments for Dividends, Combinations or Subdivisions of Common Stock. In the event that the Corporation at any time or from time to time after the date hereof shall declare or pay any dividend on the Common Stock payable in Common Stock or in any right to acquire Common Stock, or shall effect a subdivision of the outstanding shares of Common Stock into a greater number of shares of Common Stock (by stock split, reclassification or otherwise), or in the event the outstanding shares of Common Stock shall be combined or consolidated, by reclassification or otherwise, into a lesser number of shares of Common Stock, then, concurrently with the effectiveness of such event, the Series A Conversion Factor in effect immediately prior to such event shall be equitably proportionately decreased or increased, as appropriate.

5F. Other Adjustments. In case of any reorganization or any reclassification of the capital stock of the Corporation, any consolidation, merger or share exchange of the Corporation with or into another Person or Persons (other than a consolidation or merger deemed to be a liquidation, dissolution or winding up of the Corporation as provided in Paragraph 2B above), each share of Series A Preferred Stock shall thereafter be convertible into the number of shares of stock or other securities or property (including cash) to which a holder of the number of shares of Common Stock deliverable upon conversion of such share of Series A Preferred Stock would have been entitled upon the record date of (or date of, if no record date is fixed) such reorganization, reclassification, consolidation, merger or share exchange; and, in any case appropriate adjustment (as determined by the Board of Directors in good faith) shall be made in the application of the provisions herein set forth with respect to the rights and interests thereafter of the holders of Series A Preferred Stock to the end that the provisions set forth herein shall thereafter be applicable, as nearly equivalent as is practicable, in relation to any shares of stock or the securities or property (including cash) thereafter deliverable upon the conversion of the shares of Series A Preferred Stock.

5G. No Impairment. The Corporation will not, by amendment of these Articles of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation but will at all times in good faith assist in the carrying out of all the provisions of this Part 5 and in the taking of all such action as may be necessary or appropriate in order to protect the conversion right of the holders of the Series A Preferred Stock against impairment.

5H. Issue Taxes. The Corporation shall pay any and all issue and other taxes that may be payable in respect of any issue or delivery of shares of Class A Common Stock on conversion of shares of Series A Preferred Stock; provided, however, that the Corporation shall not be obligated to pay any transfer taxes resulting from any transfer requested by any holder in connection with any such conversion.

15

Part 6. Registration of Transfers. The Corporation will keep at its principal office a register for the registration of shares of Series A Preferred Stock and Common Stock. Upon the surrender of any certificate representing shares of Series A Preferred Stock or Common Stock at such place, the Corporation will, at the request of the record holder of such certificate, execute and deliver (at the Corporation’s expense) a new certificate or certificates in exchange therefor representing in the aggregate the number of shares of Series A Preferred Stock or Common Stock represented by the surrendered certificate. Each such new certificate will be registered in such name and will represent such number of shares of Series A Preferred Stock or Common Stock as is requested by the holder of the surrendered certificate and will be substantially identical in form to the surrendered certificate, and dividends will accrue on the shares of Series A Preferred Stock or Common Stock represented by such new certificate from the date to which dividends have been fully paid on such shares of Series A Preferred Stock or Common Stock represented by the surrendered certificate.

Part 7. Replacement.

Upon receipt of evidence reasonably satisfactory to the Corporation (an affidavit of the registered holder will be satisfactory) of the ownership and the loss, theft, destruction or mutilation of any certificate evidencing shares of Series A Preferred Stock or Common Stock, and in the case of any such loss, theft or destruction, upon receipt of indemnity reasonably satisfactory to the Corporation or, in the case of any mutilation, upon surrender of such certificate the Corporation will (at its expense) execute and deliver in lieu of such certificate a new certificate of like kind representing the number of shares of Series A Preferred Stock or Common Stock represented by such lost, stolen, destroyed or mutilated certificate, and dividends will accrue on the shares of Series A Preferred Stock or Common Stock represented by such new certificate from the date to which dividends have been fully paid on such lost, stolen, destroyed or mutilated certificate.

Part 8. Definitions.

“ABRY” means ABRY Partners IV, L.P. and ABRY Investment Partnership, L.P., collectively.

“Acceleration Event” means a Covenant Breach and/or a Leverage Acceleration Event.

“Accrual Premium” for any Funded Debt or Company Securities as of any date means (a) the sum of any original issue discount applicable to such Funded Debt or Company Security plus, without duplication, the aggregate amount of interest, dividend or other yield that will accrue on such Funded Debt or Company Security in accordance with its terms from such date through the date of its maturity or the date upon which it is required to be repurchased or redeemed less (b) the aggregate amount of Market Yield Accrual for such Funded Debt or Company Security from such date through such maturity, repurchase or redemption date.

“Affiliate” means with respect to any Person, a Person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such Person, and, in the case of an individual, includes any relative or spouse of such individual, or any relative or such spouse, who has the same home as such individual. The term “control”

16

means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. For purposes hereof, with respect to ABRY, the term “Affiliate” shall also include any limited partner or general partner of either ABRY Partners IV, L.P. or ABRY Investment Partnership, L.P. and any Affiliate of any such general partner or limited partner.

“Appraisal Firm” shall mean a nationally recognized investment banking or appraisal firm that, at the time in question, is not engaged, and during the preceding three years has not been engaged, by the Corporation or any Affiliate thereof.

“Assets” means the assets of the Company and its Subsidiaries on a consolidated basis, determined in accordance with GAAP, as of the end of the preceding fiscal quarter.

“Austin Ventures” means Austin Ventures III and Austin Ventures V, collectively.

“Austin Ventures III” means Austin Ventures III-A, L.P. and Austin Ventures III-B, L.P., collectively.

“Austin Ventures V” means Austin Ventures V, L.P. and Austin Ventures V Affiliates Fund, L.P., collectively.

“Board” means the board of directors of the Corporation.

“Capital Lease Obligation” means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized on a balance sheet in accordance with GAAP.

“Class A Common Stock” has the meaning provided in the introductory Paragraph of Article Four.

“Class B Common Stock” has the meaning provided in the introductory Paragraph of Article Four.

“Consolidated Cash Flow” means for any period, the Consolidated Net Income of the Corporation and its Subsidiaries plus, to the extent deducted in computing such Consolidated Net Income:

(i) provision for taxes based on income or profits of the Corporation and its Subsidiaries;

(ii) consolidated interest expense of the Corporation and its Subsidiaries, whether paid or accrued and whether or not capitalized (including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers’ acceptance financings, and net costs (if any) pursuant to Hedging Obligations); and

17

(iii) depreciation, amortization (including amortization of goodwill and other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash charges (excluding any such non-cash charges to the extent that they represent an accrual of or reserve for cash payments to be made in any future period or amortization of a prepaid cash expense that was paid in a prior period) of the Corporation and its Subsidiaries.

“Common Stock” means, collectively, the Corporation’s Class A Common Stock and Class B Common Stock, par value $.01 per share, and any capital stock of any class of the Corporation hereafter authorized that is not limited to a fixed sum or percentage of par or stated value in respect to the rights of the holders thereof to participate in dividends or in the distribution of assets upon any liquidation, dissolution or winding up of the Corporation.

“Company Securities” means any Equity Security of the Corporation.

“Consolidated Net Income” means the aggregate of the Net Income of the Corporation and its Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that:

(i) the Net Income of any Person that is not a Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash to the Corporation or a Subsidiary thereof;

(ii) any extraordinary gain or loss, together with any related provision for taxes on such gain or loss, shall be excluded;

(iii) any acquisition or divestiture by the Corporation or its Subsidiaries consummated during such period (or, with respect to any fiscal quarter, after the end of such fiscal quarter but on or prior to the date as of which EBITDA (LQA) is being determined, for purposes of determining EBITDA (LQA)), shall be given effect on a pro forma basis as if such acquisition or divestiture had been consummated on the first day of such period;

(iv) any gain or loss from foreign exchange transactions shall be excluded;

(v) the cumulative effect of a change in accounting principles shall be excluded;

(vi) any non-cash compensation expense in connection with the issuance of employee or independent contractor stock options shall be excluded; and

(vii) any amount paid or accrued as dividends on capital stock of any Subsidiary owned by Persons other than the Corporation and any of its Subsidiaries shall be excluded.

“Control Affiliate” means an Affiliate in which the Corporation (directly or indirectly) owns or holds any Equity Securities.

18

“Covenant Breach” means a breach by the Corporation of the covenants set forth in Paragraph 4C hereof (other than the covenant set forth in Paragraph 4C(ii)) or Paragraph 1G of the Shareholders Agreement (other than the covenant set forth in Paragraph 1G(b) of the Shareholders Agreement).

“Credit Agreement” means the Credit Agreement dated as of August 25, 2003 by and between the Corporation and certain lenders, as such agreement may be amended, modified, supplemented, extended or replaced from time to time.

“Debt Amount” as of any date means the sum, without duplication, of the amount of all Funded Debt and the aggregate of the liquidation preferences, and in each case, including Market Yield Accrual thereon as of such date and all applicable Accrual Premiums of all Company Securities outstanding on such date, but excluding for the purpose of such calculation the liquidation and dividend rights of the outstanding Series A Preferred Stock, any portion of such unpaid Market Yield Accrual that is a current liability as of such date and that is not yet due and payable.

“Designee” has the meaning provided for in Paragraph 4D.

“Dividend Election” means the delivery by the holders of a majority of the outstanding shares of Series A Preferred Stock of a notice to the Corporation of an election to begin accruing dividends on the shares of Series A Preferred Stock. Such election may only be given during a Dividend Election Period, may not be revoked and shall be binding on all holders of Series A Preferred Stock.

“Dividend Election Date” means the date on which a Dividend Election is made.

“Dividend Election Period” means (i) the respective 30-day periods subsequent to the date that the Exchange Value is determined pursuant to Paragraph 4D for the quarterly periods ending on June 30, 2005, December 31, 2006 and June 30, 2008 and (ii) with respect to any actual or proposed Acceleration Event, the ten day period following the date the Corporation delivers a notice of an Acceleration Event.

“Dividend Increase Trigger” means 4.8 (as such number may be increased from time to time pursuant to Paragraph 4E hereof).

“Dividend Rate” has the meaning provided in Article Four, Paragraph 1A.

“Dividend Reference Date” has the meaning provided in Article Four, Paragraph 1B.

“EBITDA (LQA)” as of any date means the product of (A) the Consolidated Cash Flow for the preceding fiscal quarter, multiplied by (B) four.

“EBITDA Multiple” means (i) 5.5, if (X) an Acceleration Event has never occurred, (Y) the holders of a majority of the Series A Preferred Stock have not made a Dividend Election during any Dividend Election Period with respect to all prior Acceleration Events, or (Z) an Acceleration Event has occurred but the Corporation redeems the Series A Preferred Stock pursuant to Part 3 hereof within thirty (30) days following the later of (a) the date of such

19

Acceleration Event and (b) the date the Series A Redemption Price is finally determined following delivery of a Dividend Election during the Dividend Election Period with respect to such Acceleration Event, (ii) if a Dividend Election has not been previously made and an Acceleration Event has occurred and if a Dividend Election is made during the Dividend Election Period with respect to such Acceleration Event and the situation described in clause (i)(Z) above does not apply, the greater of (a) 5.5 and (b) the sum of 1.0 plus the Leverage Multiple that exists immediately following such Acceleration Event, (iii) if a Dividend Election has been previously made and an Acceleration Event occurs, (a) the sum of 0.5 plus the EBITDA Multiple that was used to calculate the Exchange Value at the time the Dividend Election was made, in the event of a Covenant Breach requiring retroactive recalculation of the Exchange Value pursuant to Paragraph 4E(ii) or (b) the sum of 1.0 plus the Leverage Multiple that exists immediately following such Leverage Acceleration Event requiring recalculation of the Exchange Value pursuant to Paragraph 4E(ii) if such sum is greater than the EBITDA Multiple that was used to calculate the Exchange Value at the time a Dividend Election was made, in the event of a Leverage Acceleration Event requiring retroactive recalculation of the Exchange Value, or (iv) the EBITDA Multiple that would have been applicable if the Acceleration Event in question had never occurred.

“Equity Securities” means any capital stock, joint venture interest or similar security, including without limitation, securities containing equity features and securities containing profit participation features, or any security convertible, exercisable or exchangeable, with or without consideration, into or for any stock, joint venture interest or similar security, or any security carrying any warrant or right to subscribe for or purchase any stock, joint venture interest or similar security, or any such warrant or right.

“Exchange Value” means the amount that would be received by holders of the Series A Preferred Stock upon a liquidation of the Corporation pursuant to Part 2 hereof, assuming the conversion of all shares of Series A Preferred Stock immediately prior to such liquidation, if the total amount of assets or funds of the Corporation legally available for distribution to shareholders of the Corporation at the time of such liquidation were equal to (a) the sum of (i) the applicable EBITDA Multiple multiplied by EBITDA (LQA) plus (ii) cash of the Corporation and its Subsidiaries (determined in accordance with GAAP) in excess of $2.0 million less (b) the amount of (i) Funded Debt (excluding from the definition of Funded Debt any debt or obligations of the Corporation that result in an Acceleration Event if the Corporation redeems the shares of Series A Preferred Stock pursuant to the terms of Paragraph 4E(i) or Paragraph 4E(ii)) and (ii) accrued dividends on the Series A Preferred Stock, in each case on the applicable date of determination.

“Fair Market Value” means the value of the Company Securities in question (a) determined in good faith by the Board if 20% or more of such Company Securities are being issued to one or more Persons that are neither ABRY nor an Affiliate of ABRY and (b) either as agreed by the Corporation and the holders of a majority of the Series A Preferred Stock or, in the absence of such an agreement, as determined by an Appraisal Firm selected by the holders of a majority of the Series A Preferred Stock and approved by the Corporation (such consent not to be unreasonably withheld or delayed), if more than 80% of such Company Securities are being issued to Persons that are either ABRY or an Affiliate of ABRY. The determination of such Appraisal Firm shall be final and binding on the Corporation and the holders of the Series A

20

Preferred Stock, and the fees and expenses of such Appraisal Firm shall be paid by the Corporation.

“fair market value” means the price at which an asset would change hands between a willing buyer and a willing seller when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, and both parties are able, as well as willing, to trade and are well-informed about the asset and the market for the asset.

“Funded Debt” means any indebtedness of the Corporation and its Subsidiaries on a consolidated basis, whether or not contingent, in respect of:

(1) borrowed money, including without limitation indebtedness under the Credit Agreement;

(2) evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof);

(3) banker’s acceptances;

(4) Capital Lease Obligations;

(5) the balance deferred and unpaid of the purchase price of any property, except any such balance that constitutes an accrued expense or trade payable; or

(6) any Hedging Obligations;

if and to the extent any of the preceding items (other than letters of credit and Hedging Obligations) would appear as a liability upon a consolidated balance sheet of the Corporation and its Subsidiaries prepared in accordance with GAAP. In addition, the term “Funded Debt” includes all Funded Debt of others secured by the Lien on any asset of the Corporation or its Subsidiaries (whether or not such Funded Debt is assumed by the Corporation or any of its Subsidiaries) the amount of such Funded Debt being deemed to be the lesser of the value of such property or asset or the amount of the Funded Debt so secured and, to the extent not otherwise included, the Guarantee by the Corporation or its Subsidiaries of any Funded Debt of any other Person; provided that Funded Debt shall not include:

(x) any amounts withheld by the Corporation or any Subsidiary from the purchase price paid for the purchase of subscriber accounts;

(y) obligations in respect of letters of credit to support workers compensation obligations, performance bonds, bankers’ acceptances and surety or appeal bonds provided by the Corporation or any of its Subsidiaries to their customers in the ordinary course of their business; and

(z) obligations arising from agreements providing for indemnification, adjustment of purchase price or similar obligations, or from guarantees or letters of credit, surety bonds or performance bonds securing any obligations of the Corporation or any of its Subsidiaries pursuant to such agreements, in each case incurred in connection

21

with the disposition of any business assets or Subsidiaries of the Corporation (other than guarantees of obligations or other obligations incurred by any Person acquiring all or any portion of such business assets or Subsidiaries of the Corporation for the purpose of financing such acquisition) in a principal amount not to exceed the gross proceeds actually received by the Corporation or any of its Subsidiaries in connection with such disposition.

“GAAP” means generally accepted accounting principles in the United States as in effect from time to time; provided that if any change in GAAP would affect the computation of any financial ratio set forth herein, the Exchange Value, or the Leverage Multiple, ABRY and Austin Ventures shall negotiate in good faith to reflect such change in GAAP; provided that, until so amended such financial ratio, Exchange Value or Leverage Multiple shall continue to be computed in accordance with GAAP.

“Governmental Authority” means any agency, arbitrator, authority, commission, court, official tribunal or other instrumentality of the United States of America, any foreign country or any state, county, city or other political subdivision of the United States of America or any foreign country.

“Guarantee” means a guarantee other than by endorsement of negotiable instruments for collection in the ordinary course of business, direct or indirect, in any manner including, without limitation, by way of a pledge of assets or through letters of credit or reimbursement agreements in respect thereof, of all or any part of any Funded Debt.

“Hedging Obligations” of any Person means the net obligations of such Person under:

(i) interest rate protection agreements, interest rate swap agreements, interest rate cap agreements and interest rate collar agreements, interest rate futures and interest rate options;

(ii) other agreements or arrangements designed to protect such Person against fluctuations in interest rates; and

(iii) any foreign exchange contract, currency swap agreement or other similar agreement or arrangement.

“Indenture” means the Indenture between the corporation and The Bank of New York Trust Company, N.A. (f/k/a The Bank of New York Trust Company of Florida, N.A.), as trustee, dated August 25, 2003, as such indenture may be amended, modified, supplemented or replaced from time to time.

“Independent Accounting Firm” has the meaning provided for in Paragraph 4D.

“Initial Public Offering” means the initial sale of Class A Common Stock in a firm commitment, underwritten public offering registered under the Securities Act (other than a registration relating solely to a transaction under Rule 145 under the Securities Act or to an employee benefit plan of the Corporation).

22

“Junior Securities” means any Company Securities, except for the Series A Preferred Stock and the Permitted Senior Securities.

“Leverage Acceleration Event” means a breach by the Corporation of the covenant set forth in Paragraph 4C(ii) hereof or Paragraph 1G(b) of the Shareholders Agreement as a result of which the Leverage Multiple exceeds the Permitted Leverage Multiple.

“Leverage Multiple” means the number derived by dividing the Debt Amount by EBITDA (LQA), as of the date of determination.

“Lien” means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law, including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction.

“Liquidation Event” has the meaning provided in Article Four, Paragraph 2A.

“Liquidation Value” means a fraction, the numerator of which is equal to the Exchange Value (as of the Dividend Election Date and as adjusted or recalculated pursuant to the terms hereof) and the denominator of which is equal to the number of shares of Series A Preferred Stock outstanding.

“Market Rate” for any Funded Debt or Company Security means that portion of the dividend rate, interest rate, original issue discount, or yield applicable to such Funded Debt or Company Security that is equal to the dividend rate, interest rate, original issue discount, or yield that would apply to similar securities issued by similarly situated companies at the time such Funded Debt or Company Security was incurred or issued.

“Market Yield Accrual” means the interest, yield, or dividend accrual, or original issue discount amortization on any Funded Debt or Company Security at the applicable Market Rate (treating any Accrual Premium for such Funded Debt or Company Security as part of the principal amount thereof or other amount upon which such yield or dividend accrues).

“Maximum Rate” has the meaning provided in Article Four, Paragraph 1A.

“Measurement Date” means any date upon which the Corporation or any Subsidiary or Control Affiliate acquires an ancillary business.

“Net Income” means, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP.

“Notes”means the Corporation’s (i) Senior Subordinated Notes due 2010 issued under the Indenture and (ii) 13.5% Subordinated Notes issued pursuant to the Subordinated Note Agreement.

“NYLife” means New York Life Capital Partners II, L.P.

23

“Objection Period” has the meaning provided for in Paragraph 4D.

“Objection Statement” has the meaning provided for in Paragraph 4D.

“Permitted Leverage Multiple” means the sum of (i) the Dividend Increase Trigger plus (ii) (A) 0.3, at any time when the Leverage Multiple is less than or equal to 5.0, or (B) 0.1, at any time when the Leverage Multiple is greater than 5.0. For the avoidance of doubt, the Permitted Leverage Multiple shall increase from time to time when the Dividend Increase Trigger increases pursuant to Paragraph 4E hereof.

“Permitted Senior Securities” has the meaning provided in Article Four, Paragraph 4C(ii).

“Person” means an individual, a partnership, a corporation, an association, a joint stock company, a trust, a joint venture, a limited liability company, an unincorporated organization or other similar entity organization or a Governmental Authority.

“PPM” means PPM America Private Equity Fund LP.

“Qualified Public Offering” means the sale of the Class A Common Stock (or Common Stock of the Corporation at such time as the Corporation shall have only one class of Common Stock) in a firm commitment, underwritten public offering registered under the Securities Act (other than a registration relating solely to a transaction under Rule 145 of the Securities Act or to an employee benefit plan of the Corporation) at a price (prior to underwriters’ commissions and expenses) equal to or exceeding $6.50 per share (as such amount is equitably adjusted for subsequent stock splits, stock combinations and stock dividends affecting the Class A Common Stock after the Recapitalization) and resulting in gross proceeds of at least $50,000,000.

“Revenues” means the revenues of the Company and its Subsidiaries on a consolidated basis for the preceding fiscal quarter, determined in accordance with GAAP, multiplied by four.

“Recapitalization” has the meaning set forth in the Shareholders Agreement.

“Recapitalization Agreement” means the Recapitalization Agreement, dated July 14, 2004, among the Corporation and the parties listed on the signature pages thereto.

“Sale of the Company” has the meaning set forth in the Shareholders Agreement.

“Securities Act” means the Securities Act of 1933, as amended, or any similar federal law then in force and the rules promulgated thereunder.

“Series A Liquidation Preference” has the meaning provided in Article Four, Paragraph 2A(i).

“Series A Mandatory Redemption” has the meaning provided in Article Four, Paragraph 3B.

24

“Series A Mandatory Redemption Date” has the meaning provided in Article Four, Paragraph 3B.

“Series A Mandatory Redemption Failure” means the failure of the Corporation to redeem the Series A Preferred Stock on the Series A Mandatory Redemption Date.

“Series A Optional Redemption Date” has the meaning provided in Article Four, Paragraph 3C.

“Series A Preferred Stock” has the meaning provided in the introductory Paragraph of Article Four.

“Series A Public Offering Mandatory Redemption” has the meaning provided in Article Four, Paragraph 3A.

“Series A Public Offering Mandatory Redemption Date” has the meaning provided in Article Four, Paragraph 3A.

“Series A Redemption Price” has the meaning provided in Article Four, Paragraph 3D.

“Shareholders Agreement” means the Fifth Amended and Restated Shareholders Agreement, dated as of July 14, 2004, among the Corporation and certain investors, as such agreement may from time to time be amended, modified, replaced or supplemented in accordance with its terms.

“Subordinated Note Agreement” means the Subordinated Note and Warrant Purchase Agreement, dated as of January 18, 2002, between the corporation and certain investors, as such agreement may be amended, modified, supplemented or replaced from time to time.

“Subsidiary” means (i) any corporation where more than 50% of the outstanding voting securities or ordinary voting power to elect a majority of the board of directors is owned by the Corporation or any other Subsidiary, directly or indirectly, or (ii) a partnership or limited liability company in which the Corporation or any other Subsidiary is a general partner or manager or holds interests entitling it to receive more than 50% of the profits or losses of the partnership or limited liability company.

“Tax Valuation Event” means an audit of the Corporation or its Subsidiaries conducted by the Internal Revenue Service which results in (i) a final determination by the Internal Revenue Service that the Corporation or its Subsidiaries have improperly amortized the life of subscriber accounts over a ten year period and should have amortized the life of subscriber accounts over a period greater than ten years, and (ii) requirements that the Corporation (A) restate its tax returns to increase the length of time over which it amortizes the life of its subscriber accounts to a period greater than ten years and (B) amortize the life of subscriber accounts on future tax returns over a period greater than ten years; provided that the Corporation or such Subsidiary receives notification from the Internal Revenue Service of such audit within two years following the date hereof and subject to the other provisions contained in Section 2(h)(iii) of the Recapitalization Agreement.

25

“Triggering Funded Debt” means Funded Debt described in subsections (1), (2), (4) and (5) of the definition of Funded Debt; provided that Triggering Funded Debt shall not include any draw down by the Company or its Subsidiaries under the Credit Agreement; provided further that the outstanding principal amount of indebtedness under the Credit Agreement upon such draw down does not exceed the Aggregate Commitments (as that term is defined in the Credit Agreement as in effect on the date of consummation of the Recapitalization) on the date of such draw down.

Part 9. Amendment and Waiver. Without limiting Paragraph 4C(vii), no amendment, modification or waiver of this Article Four of these Articles of Incorporation will be binding or effective with respect to any provision of these terms without the prior written consent or vote at a duly constituted meeting of the holders of a majority of the outstanding shares of Class A Common Stock voting as a separate series. No amendment, modification or waiver of this Article Four of these Articles of Incorporation may be accomplished by merger or consolidation of the Corporation with another Person unless the Corporation has obtained the prior written consent or vote at a duly constituted meeting of the holders of a majority of the outstanding shares of Class A Common Stock voting as a separate series.

Part 10. Notices. All notices referred to herein will be in writing and will be personally delivered, delivered by facsimile or courier service, or mailed, certified with first class postage prepaid, to i) the address set forth on the books of the corporation, in the case of communications to a shareholder, and ii) the principal executive offices of the corporation, in the case of the corporation. Each such notice, request, demand, or other communication shall be deemed to have been given and received (whether actually received or not) on the date of actual delivery thereof, if personally delivered or delivered by facsimile transmission (if receipt is confirmed at the time of such transmission by telephone), or on the third day following the date of mailing, if mailed in accordance with this Paragraph, or on the day specified for delivery to the courier service (if such day is one on which the courier service will give normal assurances that such specified delivery will be made). Any notice, request, demand, or other communication given otherwise than in accordance with this Paragraph shall be deemed to have been given on the date actually received. Any shareholder may change its address for purposes of this Paragraph by giving written notice of such change to the corporation in the manner herein above provided. Whenever any notice is required to be given by law or by these Articles of Incorporation, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of notice.

Class A Common Stock and Class B Common Stock

Part 11. Rights of Common Stock.

11A. Except as otherwise provided herein, all shares of Class A Common Stock and Class B Common Stock will be identical and will entitle the holders thereof to the same rights and privileges. Each holder of Class A Common Stock will be entitled to one vote per share of Class A Common Stock held by such holder. Except as otherwise provided in these Articles of Incorporation or as expressly required by any mandatory provision of the Texas Business Corporation Act, the holders of Class B Common Stock will have no right to vote their shares of Class B Common Stock on any matters to be voted on by the shareholders of the

26

corporation and hereby expressly waive to the extent permitted by the Texas Business Corporation Act any other such rights to vote.

Part 12. Conversion of Class B Common Stock.

12A. At any time and from time to time, each holder of Class B Common Stock will be entitled to convert any and all of the shares of such holder’s Class B Common Stock into the same number of shares of Class A Common Stock at such holder’s election; provided, that each holder of Class B Common Stock shall only be entitled to convert any share or shares of Class B Common Stock to the extent that after giving effect to such conversion such holder or its Affiliates shall not directly or indirectly own, control or have power to vote a greater quantity of securities of any kind issued by the Corporation than such holder and its Affiliates are permitted to own, control or have power to vote under any law or under any regulation, rule or other requirement of any governmental authority at any time applicable to such holder and its Affiliates.

12B. Each conversion of shares of Class B Common Stock into shares of Class A Common Stock will be effected by the surrender of the certificate or certificates representing the shares to be converted at the principal office of the Corporation (or such other office or agency of the Corporation as the Corporation may designate by notice in writing to the holder or holders of the Class B Common Stock) at any time during normal business hours, together with a written notice by the holder of such Class B Common Stock stating that such holder desires to convert the shares, or a stated number of the shares, of Class B Common Stock represented by such certificate or certificates into Class A Common Stock and a written undertaking that upon such conversion such holder and its Affiliates will not directly or indirectly own, control or have the power to vote a greater quantity of securities of any kind issued by the Corporation than such holders and its Affiliates are permitted to own, control or have the power to vote under any applicable law, regulation, rule or other governmental requirement (and such statement will obligate the Corporation to issue such Class A Common Stock). Such conversion will be deemed to have been effected as of the close of business on the date on which such certificate or certificates have been surrendered and such notice has been received, and at such time the rights of the holder of the converted Class B Common Stock as such holder will cease and the Person or Persons in whose name or names the certificate or certificates for shares of Class A Common Stock are to be issued upon such conversion will be deemed to have become the holder or holders of record of the shares of Class A Common Stock represented thereby.

12C. Promptly after such surrender and the receipt of such written notice, the Corporation will issue and deliver in accordance with the surrendering holder’s instructions (i) the certificate or certificates for the Class A Common Stock issuable upon such conversion and (ii) a certificate representing any Class B Common Stock which was represented by the certificate or certificates delivered to the Corporation in connection with such conversion but which was not converted.

12D. If the Corporation in any manner subdivides or combines the outstanding shares of one class of either Class A Common Stock or Class B Common Stock, the outstanding shares of the other class will be proportionately subdivided or combined.

27

12E. In the case of, and as a condition to, any capital reorganization of, or any reclassification of the capital stock of, the Corporation (other than a subdivision or combination of shares of Class A Common Stock or Class B Common Stock into a greater or lesser number of shares (whether with or without par value) or a change in the par value of Class A Common Stock or Class B Common Stock or from par value to no par value, or from no par value to par value) or in the case of, and as condition to, the consolidation or merger of the Corporation with or into another Corporation (other than a merger in which the Corporation is the continuing corporation and which does not result in any reclassification of outstanding shares of Class A Common Stock or Class B Common Stock), each share of Class B Common Stock shall be convertible into the number of shares of stock or other securities or property receivable upon such reorganization, reclassification, consolidation or merger by a holder of the number of shares of Class A Common Stock of the Corporation into which such share of Class B Common Stock was convertible immediately prior to such reorganization, reclassification, consolidation or merger; and, in any such case, appropriate adjustment shall be made in the application of the provisions set forth in this Paragraph 12E with respect to the rights and interests thereafter of the holders of Class B Common stock to the end that the provisions set forth in this Paragraph 12E (including provisions with respect to the conversion rate) shall thereafter be applicable, as nearly as they reasonably may be, in relation to any shares of stock or other securities or property thereafter deliverable upon the conversion of the shares of Class B Common Stock.

12F. Shares of Class B Common Stock which are converted into shares of Class A Common Stock as provided herein shall not be reissued.

12G. The Corporation will at all times reserve and keep available out of its authorized but unissued shares of Class A Common Stock or its treasury shares, solely for the purpose of issue upon the conversion of the Class B Common Stock as provided in this Part 12, such number of shares of Class A Common Stock as shall then be issuable upon the conversion of all then outstanding shares of Class B Common Stock (assuming that all such shares of Class B Common Stock are held by Persons entitled to convert such shares into Class A Common Stock).

12H. The issuance of certificates for Class A Common Stock upon the conversion of Class B Common Stock will be made without charge to the holders of such shares for any issuance tax in respect thereof or other cost incurred by the Corporation in connection with such conversion and the related issuance of Class A Common Stock. The Corporation will not close its books against the transfer of Class B Common Stock or of Class A Common Stock issued or issuable upon the conversion of Class B Common Stock in any manner which would interfere with the timely conversion of Class B Common Stock.

3B. The Amended and Restated Articles of Incorporation alter or change Article Five of the original Restated Articles of Incorporation to delete Article Five in its entirety.

28

3C. The Amended and Restated Articles of Incorporation alter or change Article Six of the original Restated Articles of Incorporation to renumber such Article Six as Article Five, and the full text of the altered and renumbered Article Five is as follows:

The power to cumulate votes (cumulative voting) in the election of directors is hereby expressly prohibited.

The shareholders of the Corporation shall not have a preemptive right to purchase, acquire or subscribe for any unissued, additional or treasury shares of stock of any class or bonds, notes, debentures or other securities convertible into stock of the Corporation or carrying any right to purchase, acquire or subscribe for stock of any class, except as set forth in the Shareholders Agreement.

3D. The Amended and Restated Articles of Incorporation renumber Article Seven of the original Restated Articles of Incorporation as Article Six.

3E. The Amended and Restated Articles of Incorporation alter or change Article Eight of the original Restated Articles of Incorporation to renumber such Article Eight as Article Seven, and the full text of the altered and renumbered Article Seven is as follows:

AMENDED ARTICLE SEVEN

The number of directors is seven. The names of the directors are:

James R. Hull	12801 Stemmons Freeway, Suite 821
	Dallas, Texas 75234-5879
Jay M. Grossman	ABRY Partners, LLC
	111 Huntington Avenue, 30th Floor
	Boston, Massachusetts 02199
Erik Brooks	ABRY Partners, LLC
	111 Huntington Avenue, 30th Floor
	Boston, Massachusetts 02199
Royce Yudkoff	ABRY Partners, LLC
	111 Huntington Avenue, 30th Floor
	Boston, Massachusetts 02199
Brent Stone	ABRY Partners, LLC
	111 Huntington Avenue, 30th Floor
	Boston, Massachusetts 02199
Blaine F. Wesner	Austin Ventures V, L.P.
	300 West 6th Street, Suite 2300
	Austin, Texas 78701

29

3F. The Amended and Restated Articles of Incorporation alter or change Article Nine of the original Restated Articles of Incorporation to renumber such Article Nine as Article Eight, and the full text of the altered and renumbered Article Eight is as follows:

Part 8.

8A. The Corporation shall, to the fullest extent permitted by Section 2.02-1 of the Texas Business Corporation Act, as the same may be amended and supplemented from time to time, indemnify and advance expenses to, (i) its directors and officers, and (ii) any person who at the request of the Corporation is or was serving as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, from and against any and all of the expenses, liabilities, or other matters referred to in or covered by said section as amended or supplemented (or any successor), provided, however, that except with respect to proceedings to enforce rights to indemnification, the by-laws of the Corporation may provide that the Corporation shall indemnify any director, officer or such person in connection with a proceeding (or part thereof) initiated by such director, officer or such person only if such proceeding (or part thereof) was authorized by the Board. The Corporation, by action of its Board, may provide indemnification or advance expenses to employees and agents of the Corporation or other persons only on such terms and conditions and to the extent determined by the Board in its sole and absolute discretion. The indemnification provided for herein shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any by-law, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in their official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee, or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. If the Texas Business Corporation Act is amended after the filing of the Amended and Restated Articles of Incorporation of which this article is a part to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by Texas Business Corporation Act, as so amended. Any repeal or modification of the foregoing paragraph by the shareholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification.

8B. The Corporation may purchase and maintain insurance on its own behalf and on behalf of any person who is or was a director, officer, employee, fiduciary, or agent of the Corporation or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, whether or not the Corporation would have the power to indemnify such person against such liability under Article Eight.

8C. Expenses incurred by any person described Article Eight in defending a proceeding shall be paid by the Corporation in advance of such proceeding’s final disposition unless otherwise determined by the Board in the specific case upon receipt of an undertaking by or on behalf of the director or officer to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the Corporation. Such expenses incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the Board deems appropriate.

8D. Persons who are not covered by the provisions of this Article Eight and who are or were employees or agents of the Corporation, or who are or were serving at the

30

request of the Corporation as employees or agents of another corporation, partnership, joint venture, trust or other enterprise, may be indemnified to the extent authorized at any time or from time to time by the Board.

8E. The provisions of Article Eight shall be deemed to be a contract right between the Corporation and each director or officer who serves in any such capacity at any time while these Amended and Restated Articles of Incorporation and the relevant provisions of the Texas Business Corporation Act or other applicable law are in effect, and any repeal or modification of these Amended and Restated Articles of Incorporation or any such law shall not affect any rights or obligations then existing with respect to any state of facts or proceeding then existing.

8F. For purposes of this Article Eight, references to the “Corporation” shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, join venture, trust or other enterprise, shall stand in the same position under this Article Nine with respect to the resulting or surviving corporation as he or she would have with respect to such constituent corporation if its separate existence had continued.

8G. A director of this Corporation shall not be liable to the Corporation or its shareholders for monetary damages for an act or omission in the director’s capacity as a director, except that this provision does not eliminate or limit the liability of a director to the extent the director is found liable for:

(i) a breach of the director’s duty of loyalty to the Corporation or its shareholders;

(ii) an act or omission not in good faith that constitutes a breach of duty of the director to the Corporation or an act or omission that involves intentional misconduct or a knowing violation of the law;

(iii) a transaction from which the director received an improper benefit, whether or not the benefit resulted from an action taken within the scope of the director’s office; or

(iv) an act or omission for which the liability of the director is explicitly provided by an applicable statute.

Any amendment, repeal or modification of the foregoing provision by the shareholders of the Corporation shall not adversely affect any limitation on the liability of any director of the Corporation existing at or prior to the time of such amendment, repeal or modification.

3G. The Amended and Restated Articles of Incorporation alter or change Article Ten of the original Restated Articles of Incorporation to renumber such Article Ten as Article Nine.

31

ARTICLE FOUR

Each such amendment made by these Amended and Restated Articles of Incorporation has been effected in conformity with the provisions of the TBCA and such Amended and Restated Articles of Incorporation as so amended were duly adopted by the shareholders of the Corporation by written consent as of July 14, 2004. Each such amendment has been approved in the manner required by the TBCA and the constituent documents of the Corporation.

ARTICLE FIVE

The following Amended and Restated Articles of Incorporation correctly set forth without change the Restated Articles of Incorporation and hereby supersede the Corporation’s existing Restated Articles of Incorporation and all amendments and restatements thereof.

AMENDED AND RESTATED

ARTICLES OF INCORPORATION

OF

MONITRONICS INTERNATIONAL, INC.

July 14, 2004

ARTICLE ONE

The name of the corporation is Monitronics International, Inc.

ARTICLE TWO

The period of its duration is perpetual.

ARTICLE THREE

The purpose or purposes for which the Corporation is organized are the transaction of any and all lawful business for which a corporation may be incorporated under the Texas Business Corporation Act.

ARTICLE FOUR

The aggregate number of shares which the Corporation shall have authority to issue is 88,947,075 shares, consisting of: 80,700,000 shares of Common Stock, $0.01 par value (“Common Stock”), (i) 80,000,000 shares of which shall be classified as Class A Common Stock, $0.01 par value (“Class A Common Stock”), and (ii) 700,000 shares of which shall be classified as Class B Common Stock, $0.01 par value (“Class B Common Stock”); and 8,247,075 shares of Series A Preferred Stock, $0.01 par value (the “Series A Preferred Stock”).

The Corporation may purchase its own shares to the extent that may be allowed by law. The Series A Preferred Stock has the voting powers, the designations, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions set forth below.

32

Series A Preferred Stock

Part 1. Dividends.

1A. Subject to paragraph 1E, when and as declared by the Board and to the extent permitted under the Texas Business Corporation Act the Corporation shall pay preferential dividends in cash to the holders of the Series A Preferred Stock as provided in this Section 1A. Following the Dividend Election Date, dividends on each share of the Series A Preferred Stock shall initially accrue on a daily basis (and shall accumulate annually as set forth in Section 1B) at the rate of 8% per annum up to the first anniversary of the Dividend Election Date and from and thereafter such accrual shall increase by an additional 2% per annum on each anniversary of the Dividend Election Date up to a maximum rate of 16% per annum (the “Maximum Rate”) (such rate of accrual as applicable at any given time and as further adjusted pursuant to the terms hereof, being the “Dividend Rate”), in each case of the sum of the Liquidation Value thereof plus all accumulated and unpaid dividends thereon from and including the Dividend Election Date to and including the first to occur of (i) the date on which the Liquidation Value of such share (plus all accrued and unpaid dividends thereon) is paid to the holder thereof in connection with the liquidation of the Corporation or the redemption of such share by the Corporation, or (ii) the date on which such share is otherwise acquired by the Corporation. Additionally, (A) subject to the second proviso in this sentence, at any time when the Leverage Multiple exceeds the Dividend Increase Trigger (but, in any event, only for any period of time after the Dividend Election Date) (a “Trigger Event”), the Dividend Rate shall be 2% per annum in excess of the otherwise-applicable Dividend Rate, provided that upon the date on which the Leverage Multiple no longer exceeds the Dividend Increase Trigger or such noncompliance is waived, such 2% per annum addition to the Dividend Rate shall no longer be applicable; and provided further that the otherwise-applicable Dividend Rate shall not be increased pursuant to this Paragraph 1A(ii)(A) following a Trigger Event if such Trigger Event results in an increase of the otherwise-applicable Dividend Rate pursuant to the provisions of Paragraph 4(E)(i)(A) or 4(E)(ii)(A), and (B) following a Series A Mandatory Redemption Failure and until such time as all of the shares of Series A Preferred Stock are redeemed or the consummation of a Sale of the Company, the Maximum Rate shall be the lesser of 24% and the maximum rate permitted by applicable law. Such dividends shall accrue whether or not they have been declared and whether or not there are profits, surplus or other funds of the Corporation legally available for the payment of dividends.

1B. Dividend Reference Dates. To the extent not paid on any anniversary of the Dividend Election Date (each, a “Dividend Reference Date”), all dividends which have accrued during the twelve month period ending upon that Dividend Reference Date on each share of Series A Preferred Stock outstanding shall be accumulated and shall remain accumulated dividends with respect to such share of Series A Preferred Stock until paid to the holder thereof.

1C. No Other Payments. No dividends or other distributions (whether in cash, securities or other property, other than dividends paid on shares of Common Stock and consisting solely of shares of Common Stock of the same class) shall be paid on or declared and set apart for any Common Stock or any other series or class of capital stock of the Corporation (other than Series A Preferred Stock and Permitted Senior Securities (as hereinafter defined)) at

33

any time after the Dividend Election Date at any time when any Series A Preferred Stock is outstanding.

1D. Distribution of Partial Dividend Payments. If at any time the Corporation pays less than the total amount of dividends then accrued with respect to the Series A Preferred Stock, such payment shall be distributed pro rata among the holders entitled thereto based upon the aggregate accrued but unpaid dividends on the shares of Series A Preferred Stock.

1E. Restrictions. No dividends shall be paid or declared under Paragraph 1A (i) if a Default or Event of Default has occurred and is then continuing under the Credit Agreement, the Indenture or the Subordinated Note Agreement (each an “Existing Default”) or (ii) to the extent the payment thereof would cause a Default or Event of Default under the Credit Agreement, the Indenture or the Subordinated Note Agreement to occur; provided, that if the Corporation is not permitted to pay dividends as a result of the operation of this Paragraph 1E, the Corporation shall continue to accrue dividends pursuant to Paragraph 1A, and such dividends shall be paid out of funds legally available therefore immediately after the cure or waiver of any Existing Default, but only if and to the extent that the payment of such dividends would not result in a Default or an Event of Default under the Credit Agreement, the Indenture or the Subordinated Note Agreement.

Part 2. Liquidation Preference.

2A. In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary (each, a “Liquidation Event”):

(i) If, and only if, a Dividend Election has been made and following the distribution in full of assets and funds to holders of Permitted Senior Securities as required by the terms of such securities, the holders of the Series A Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Corporation to the holders of Junior Securities by reason of their ownership thereof, an amount (the “Series A Liquidation Preference”) for each share of Series A Preferred Stock then held by them equal to the Liquidation Value plus accrued but unpaid dividends on such share of Series A Preferred Stock to the date fixed for such Liquidation Event. If upon the occurrence of a Liquidation Event, the assets and funds available to be distributed to the holders of the Series A Preferred Stock shall be insufficient to permit the payment to such holders of the full Series A Liquidation Preference, then, following the distribution in full of assets and funds to holders of Permitted Senior Securities as required by the terms of such securities, the entire assets and surplus funds of the Corporation legally available for distribution shall be distributed ratably among the holders of the Series A Preferred Stock in proportion to the Series A Liquidation Preference of the shares of Series A Preferred Stock then held by them.

(ii) Subject to the payment in full of (a) the liquidation preference of any Permitted Senior Securities outstanding, if any, and (b) the Series A Liquidation Preference, as provided in subparagraph (i) above, if a Dividend Election has been made, all remaining assets and surplus funds of the Corporation legally available for distribution shall be distributed among the holders of Common Stock ratably in proportion to the number of shares of Common Stock then held by them.

34

2B. For purposes of this Part 2, a Liquidation Event shall, at the option of (x) the holders of a majority of the outstanding shares of Series A Preferred Stock (but only if a Dividend Election has been made prior to such event) or (y) the Board (in any other event), include:

(i) a consolidation or merger of the Corporation with or into any other Corporation, or any other Person, other than a wholly-owned Subsidiary of the Corporation, excluding any transaction in which shareholders of the Corporation who hold a majority of the voting stock of the Corporation immediately prior to the transaction own a majority of the voting stock of the resulting entity immediately following the transaction (but only if the relative rights and preferences of the Series A Preferred Stock are not altered or diminished thereby except by senior or pari passu rights of the holders of any Permitted Senior Securities);

(ii) any corporate reorganization in which the Corporation shall not be the continuing or surviving entity resulting from such reorganization, excluding any transaction in which shareholders of the Corporation who hold a majority of the voting stock of the Corporation immediately prior to the transaction own a majority of the voting stock of the resulting entity immediately following such transaction and the same relative rights and preferences of the Series A Preferred Stock shall exist in the resulting entity after such transaction except as such rights and preferences are affected by senior or pari passu rights of the holders of any Permitted Senior Securities;

(iii) a sale of all or substantially all of the assets of the Corporation; or

(iv) a statutory share exchange in which any Person acquires all of the outstanding shares of each class or series of capital stock of the Corporation.

2C. Any securities to be delivered to the holders of Series A Preferred Stock pursuant to Paragraph 2A(i) above shall be valued as follows:

(i) Securities not subject to restrictions on free transferability (other than a customary lock-up the duration of which does not exceed 180 days or restrictions arising under federal or state securities or blue-sky laws):

(a) if such securities are listed on a securities exchange, the fair market value shall be deemed to be the average of the security’s closing prices on such exchange over the 20-trading-day period ending three trading days prior to such delivery or, if there have been no sales on any such exchange on any of such 20 trading days, the average of the highest bid and lowest asked prices on all such exchanges at the end of such day, or, if such securities are not so listed, the average of the representative bid and asked prices quoted on the Nasdaq National Market System (“Nasdaq NMS”) as of 4:00 P.M., New York time, or, if such securities are neither listed on a securities exchange nor quoted in the Nasdaq NMS, the average of the highest bid and lowest asked prices on such day in the domestic over-the-counter market as reported by the National Quotation Bureau Incorporated, or any similar successor organization, in each such case averaged over the 20-trading-day period ending three trading days prior to such delivery; or

35

(b) otherwise, the value shall be the fair market value thereof, as mutually determined by the AV Director and the ABRY Directors (both as defined in the Shareholders Agreement), or, in the absence of such agreement, by an independent appraisal paid for by the Corporation and conducted by an Appraisal Firm.

(ii) Securities not described in clause 2C(i) above shall be valued at an appropriate discount from the fair market value determined as above in subparagraph (i)(a) or (i)(b), as applicable, to reflect the approximate fair market value thereof, as mutually determined by the AV Director and the ABRY Directors, or, in the absence of such agreement, by an independent appraisal paid for by the Corporation and conducted by an Appraisal Firm.

(iii) Whenever reference is made in these Articles of Incorporation to determinations being made mutually by the AV Director and the ABRY Directors, or language to a similar effect, the determination shall be made with the ABRY Directors having one (1) vote collectively in such determination and the AV Director having one (1) vote in such determination.

2D. If such Liquidation Event will occur during a Dividend Election Period: (i) the Corporation shall give each holder of record of Series A Preferred Stock written notice of any impending transaction described in Paragraph 2B above not later than the earlier of 20 days prior to the shareholders meeting called to approve such transaction and 20 days prior to the closing of such transaction, and shall also notify such holders in writing of the final approval of such transaction, (ii) the first of said notices shall describe the material terms and conditions of the contemplated transaction, and the Corporation shall thereafter give such holders prompt notice of any material changes to such terms and conditions, and (iii) the Liquidation Event shall in no event take place sooner than 20 days after the mailing by the Corporation of the first notice provided in clause (i) or sooner than 20 days after the mailing by the Corporation of any notice of material changes provided for herein; provided, however, that such periods may be shortened upon the written consent of the holders of a majority of the outstanding shares of Series A Preferred Stock.

Part 3. Redemptions.

3A. Subject to Paragraph 3I, on the date of the closing of a Qualified Public Offering if a Dividend Election has been made (the “Series A Public Offering Mandatory Redemption Date”), the Corporation shall redeem (the “Series A Public Offering Mandatory Redemption”) all outstanding shares of Series A Preferred Stock at a price per share equal to the Series A Redemption Price. Notwithstanding anything else to the contrary contained herein, the Corporation shall not effect a Qualified Public Offering at any time when the Series A Preferred Stock is outstanding and a Dividend Election has been made unless it concurrently effects the redemption required by this Paragraph 3A.

3B. Subject to Paragraph 3I, on June 30, 2008 (if a Dividend Election has been made by such date), or on the 30th day following delivery of a Dividend Election during the thirty (30) day Dividend Election Period that begins on the date of the EBITDA Determination for the quarterly period ending June 30, 2008 (if a Dividend Election has not been made by June 30, 2008) (June 30, 2008 or such 30th day being the “Series A Mandatory Redemption Date”),

36

the Corporation shall redeem (the “Series A Mandatory Redemption”) all outstanding shares of Series A Preferred Stock at a price per share equal to the Series A Redemption Price. If the Series A Mandatory Redemption Date is not a business day, such redemption shall be made on the immediately succeeding business day.

3C. Subject to Paragraph 3I, the Corporation may at any time and from time to time, following the Dividend Election Date, redeem all or at least fifty percent of the outstanding shares of Series A Preferred Stock; provided that if the Corporation redeems less than all of the shares of Series A Preferred Stock then outstanding it shall not be permitted to redeem additional shares of Series A Preferred Stock unless in such additional redemption it redeems all shares of Series A Preferred Stock then outstanding. Upon the date of any such redemption (any such date a “Series A Optional Redemption Date”), the Corporation shall pay a price per share equal to the Series A Redemption Price. Redemptions made pursuant to this Paragraph 3C shall not relieve the Corporation of its obligation to redeem Series A Preferred Stock on the Series A Mandatory Redemption Date or the Series A Public Offering Mandatory Redemption Date.

3D. The holders of Series A Preferred Stock shall be entitled to receive from the Corporation on the Series A Public Offering Mandatory Redemption Date, the Series A Mandatory Redemption Date or any Series A Optional Redemption Date, in each case if a Dividend Election has been made prior to such date, an amount in cash for each share of Series A Preferred Stock to be redeemed equal to the Liquidation Value of such share, plus any accrued but unpaid dividends on such share of Series A Preferred Stock to and including the applicable redemption date (the “Series A Redemption Price”).

3E. If the Corporation fails for any reason (including because of restrictions under agreements with other Persons, including restrictions in the agreements pursuant to which Permitted Senior Securities were issued or by the terms of such securities themselves, or a lack of sufficient funds of the Corporation legally available for redemption) to redeem all outstanding shares of Series A Preferred Stock on the Series A Mandatory Redemption Date, the sole remedies of the holders of Series A Preferred Stock shall be the increase in the Maximum Rate set forth in Paragraph 1A and the rights granted to the holders of Series A Preferred Stock pursuant to Part 3 of the Shareholders Agreement. All other terms contained in these Articles of Incorporation will remain in full force and effect.

3F. No holder of a share of Series A Preferred Stock will be entitled to any dividends accruing after the date on which the Series A Redemption Price with respect to such share is paid. On such date, all rights of the holder of such share of Series A Preferred Stock will cease, and such share of Series A Preferred Stock will not be deemed to be outstanding.

3G. Any shares of Series A Preferred Stock that are redeemed or otherwise acquired by the Corporation will be cancelled and will not be reissued, sold or transferred. If fewer than the total number of shares of Series A Preferred Stock represented by any certificate are redeemed, a new certificate representing the number of unredeemed shares of Series A Preferred Stock will be issued to the holder thereof without cost to such holder within three (3) business days after surrender of the certificate representing the redeemed shares.

37

3H. Neither the Corporation nor any Subsidiary will redeem, repurchase or otherwise acquire any shares of Series A Preferred Stock except as expressly authorized herein or pursuant to a purchase offer made pro-rata to all holders of shares of Series A Preferred Stock based on the number of shares of Series A Preferred Stock owned by each such holder.

3I. Notwithstanding anything in this Part 3 to the contrary, neither the Corporation nor any Subsidiary will redeem, repurchase or otherwise acquire any shares of Series A Preferred Stock or any other series or class of capital stock of the Corporation (a) prior to the date that is 91 days after the earlier of the stated maturity date of any of the Notes or the first date on which no Notes are outstanding, (b) prior to the date that is 91 days after the earlier of (i) the stated maturity of all of the loans under the Credit Agreement or (ii) the payment in full of all obligations (including obligations under letters of credit) and the termination of the commitments of the various lenders under the Credit Agreement, or (c) if redemption at such time is prohibited under the Credit Agreement. If on the date that the holders of any series or class of capital stock of the Corporation could elect to require the Corporation to effect the redemption of capital stock of the Corporation, any Notes or obligations under the Credit Agreement are outstanding, or the redemption of capital stock of the Corporation is prohibited under the Credit Agreement, the time for giving such notice shall be extended until 100 days following the date (the “Extension Date”) upon which no Notes or obligations under the Credit Agreement remain outstanding and the redemption of capital stock of the Corporation is no longer prohibited under the Credit Agreement.

Part 4. Voting Rights.

4A. Except as otherwise provided in these Articles of Incorporation or the Texas Business Corporation Act, the holders of Series A Preferred Stock will have no right to vote their shares of Series A Preferred Stock on any matters to be voted on by the shareholders of the Corporation; provided that prior to the Dividend Election Date, the holders of Series A Preferred Stock shall be entitled to vote together with the holders of Class A Common Stock (as a single, combined class) on all matters submitted to a vote of the holders of Class A Common Stock and, in any such vote, each holder of a share of Series A Preferred Stock shall be entitled to that number of votes equal to the number of shares of Class A Common Stock into which such share of Series A Preferred Stock is then convertible.

4B. On any matter specifically requiring the vote of only the holders of the Series A Preferred Stock voting together as a single class pursuant to these Articles of Incorporation, each holder of Series A Preferred Stock will be entitled to one vote per share of Series A Preferred Stock held by such holder.

4C. At any time after the Dividend Election Date when any Series A Preferred Stock is outstanding, without first obtaining the approval or consent of the holders of a majority of the outstanding shares of Series A Preferred Stock voting together as a separate class, the Corporation shall not:

(i) change the nature of the business or operations of the Corporation or any of its Subsidiaries or Control Affiliates, or enter into or allow any of its Subsidiaries or Control Affiliates to enter into a line of business other than the purchase of security alarm and

38

other monitoring contracts, the sale, servicing, installation and/or monitoring of security alarms and other monitoring systems, and ancillary businesses acquired by the Corporation or any Subsidiary or Control Affiliate that do not constitute in the aggregate more than 5% of the Revenues, Assets or EBITDA (LQA), as determined on any Measurement Date;

(ii) authorize or issue, or obligate itself to issue, any Company Security (including any Company Security convertible into or exercisable or exchangeable for any Company Security) that ranks senior to, or pari passu with, the Series A Preferred Stock as to dividend or redemption rights or liquidation preferences or issue or obligate itself to issue, or allow any of its Subsidiaries to issue or obligate itself to issue, any Triggering Funded Debt, unless: (a) in the case of any such Company Securities only, such Company Securities are issued at no less than Fair Market Value, (b) such Company Securities or Triggering Funded Debt is issued for cash (provided, however, that such Company Securities may be issued as non-cash consideration for the acquisition of assets or Equity Securities of another Person, so long as such acquisition or issuance of Company Securities does not result in a breach of any other provision of these Articles of Incorporation), (c) no Company Securities outstanding immediately after the Recapitalization are converted into or exchanged for such Company Securities or Triggering Funded Debt, (d) such Company Securities or Triggering Funded Debt, as the case may be, do not contain terms and conditions that prohibit the exercise of the rights of Austin Ventures or the holders of Series A Preferred Stock pursuant to Part 1 or Part 3 of the Shareholders Agreement, and (e) after such issuance and the application of the proceeds of such issuance, either (1) the Debt Amount does not exceed the product of the Permitted Leverage Multiple multiplied by EBITDA (LQA) or (2) as a result of such issuance (after giving effect to the application of the proceeds thereof), the Leverage Multiple does not increase (and all Company Securities issued in compliance with this subparagraph 4C(ii) being the “Permitted Senior Securities”));

(iii) issue, or obligate itself to issue, any Series A Preferred Stock, other than to holders of Series A Preferred Stock outstanding immediately after the Recapitalization and their permitted transferees;

(iv) redeem, purchase or otherwise acquire (or pay into or set aside for a sinking fund for such purpose), or allow any of its Subsidiaries or Control Affiliates to redeem, purchase or otherwise acquire, any Company Securities (including securities convertible into or exercisable or exchangeable into Company Securities) that rank junior to the Series A Preferred Stock as to dividend or redemption rights or liquidation preferences, or that are pari passu with or senior to the Series A Preferred Stock as to dividend or redemption rights or liquidation preferences and that are not Permitted Senior Securities, excluding in each case redemptions of Company Securities issued to (A) employees or the Hull Family Partnership, L.P. that are otherwise required under arrangements in effect on the date of the Recapitalization, or (B) employees subsequent to the date of the Recapitalization pursuant to and in accordance with the terms of a stock restriction agreement; provided that the aggregate amount of such redemptions in any fiscal year pursuant to this clause (B) shall not exceed $50,000;

(v) declare or pay a dividend or distribution of any kind on any Company Security that ranks junior to the Series A Preferred Stock as to dividend or redemption rights or liquidation preferences, or that is pari passu with or senior to the Series A Preferred

39

Stock as to dividend or redemption rights or liquidation preferences and that are not Permitted Senior Securities;

(vi) other than provisions in the definitive documentation relating to any Funded Debt or Permitted Senior Securities or the terms of such Funded Debt or Permitted Senior Securities themselves (which shall not, in either case, prohibit Austin Ventures or the holders of Series A Preferred Stock from exercising their rights under Part 1 or Part 3 of the Shareholders Agreement), enter into, or allow any of its Subsidiaries or Control Affiliates to enter into, any financing transaction, agreement to issue Company Securities or other arrangement with terms and conditions that prohibit the Corporation from performing its obligations in respect of the Series A Preferred Stock;

(vii) enter into, or allow any of its Subsidiaries or Control Affiliates to enter into, any financing transaction, agreement to issue Company Securities or other arrangement with terms and conditions that prohibit the exercise of the rights of Austin Ventures or the holders of Series A Preferred Stock pursuant to Part 1 or Part 3 of the Shareholders Agreement;

(viii) acquire, or permit any Subsidiary or any Control Affiliate to acquire, any Equity Securities or other interest in any Person or business (whether by a purchase of assets, purchase of Equity Securities, merger or otherwise), or enter into any joint venture, in either case involving aggregate consideration payable by the Corporation and its Subsidiaries and Control Affiliates (including, without limitation, the assumption by one or more of them of liabilities whether direct or indirect) exceeding $100,000,000 in any one transaction or series of related transactions; provided, however, that this subparagraph (viii) shall not preclude the purchase of security alarm contracts in the ordinary course of business;

(ix) make any amendment to these Articles of Incorporation or the Corporation’s bylaws, or file any resolution of the Board with the Texas Secretary of State, containing any provisions which (a) would increase the number of authorized shares of the Series A Preferred Stock, or (b) would adversely affect or otherwise impair the rights or the relative preferences and priorities of the holders of the Series A Preferred Stock under these Articles of Incorporation or the Corporation’s bylaws, other than any such amendment or resolution to establish or amend the terms of Permitted Senior Securities that does not otherwise violate any of the terms of these Articles of Incorporation;

(x) enter into, amend, modify or supplement, or permit any Subsidiary or Control Affiliate to enter into, amend, modify or supplement, any agreement, transaction, commitment or arrangement (including, without limitation, any agreement, transaction, commitment or arrangement whereby any fees or other consideration would be paid) with any of its or any such Subsidiary’s or Control Affiliate’s officers, directors, employees, stockholders or Affiliates or with any individual related by blood, marriage or adoption to any such individual or with any entity in which any such Person owns a beneficial interest, except for (a) customary employment arrangements and benefit programs on reasonable terms (provided, however, that no such arrangements or programs shall be with ABRY or any Affiliate of ABRY), (b) financing arrangements with any such Person(s) if (i) such financing results in the issuance of Company Securities or securities of any Subsidiary or Control Affiliate, as the case may be, that are either

40

(A) junior as to dividend and redemption rights and liquidation preferences to the Series A Preferred Stock or (B) Permitted Senior Securities, (ii) such Company Securities or securities of such Subsidiary or Control Affiliate, as the case may be, are issued either at no less than Fair Market Value for cash or upon the conversion, exercise or exchange in accordance with their terms of Company Securities previously issued in accordance with Paragraph 1G(j) of the Shareholders Agreement or this Paragraph 4C(x), and (iii) such financing does not include the payment of any fees to ABRY and/or Affiliates of ABRY, or (c) so long as ABRY and its Affiliates control the Corporation, transactions with officers, directors, employees, stockholders or Affiliates of the Corporation or any of its Subsidiaries or with any individual related by blood, marriage or adoption to any such individual or with any entity in which any such Person owns a beneficial interest that are not ABRY or an Affiliate of ABRY on such terms as are approved by ABRY; or

(xi) establish, acquire or own, or allow any Subsidiary or Control Affiliate to establish, acquire or own, any Equity Securities (or securities convertible into, or exercisable or exchangeable for, Equity Securities) of ABRY or any Affiliate of ABRY; provided that the Company, a Subsidiary or a Control Affiliate may establish, acquire or own any Equity Securities of any Subsidiary or Control Affiliate that is deemed to be an Affiliate of ABRY solely by virtue of ABRY’s ownership of stock of, and control of, the Corporation.

The rights set forth in this Paragraph 4C shall terminate upon the consummation of a Qualified Public Offering; provided that the Corporation complies with its obligations pursuant to Paragraph 3A hereof.

4D. For purposes of determining compliance with subparagraph 4C(ii) and applying Paragraph 4E, and for purposes of determining the Exchange Value as of the Dividend Election Date or any other date, the relevant Leverage Multiple and/or Exchange Value will be determined in accordance with the following procedures:

(i) Upon or prior to the incurrence of any Triggering Funded Debt or the issuance of any Company Securities that rank senior to or pari passu with the Series A Preferred Stock as to dividend or redemption rights or liquidation preferences, that the Corporation believes has or will result in the occurrence of Leverage Acceleration Event or following the receipt by the Corporation of notice from the holders of a majority of the Series A Preferred Stock that such holders believe a Leverage Acceleration Event has occurred, the Corporation shall deliver to the holders of Series A Preferred Stock a notice setting forth the Corporation’s determination of the Leverage Multiple after giving effect to such issuance and the application of the proceeds thereof. After the end of the fiscal quarter ending on each of June 30, 2005, December 31, 2006 and June 30, 2008 (unless a Dividend Election theretofore has been made), or after a Dividend Election is made (or a re-computation of the Exchange Value is required) pursuant to Paragraph 4E, the Corporation shall deliver to the holders of Series A Preferred Stock a notice setting forth the Corporation’s determination of the Exchange Value, which notice shall contain the Corporation’s calculations of all items necessary to calculate the Leverage Multiple and/or the Exchange Value and reasonable back-up and supporting data.

(ii) A designee of the holders of a majority of the outstanding shares of Series A Preferred Stock (the “Designee”) shall have the right to review the books and records of

41

the Corporation, including the right to engage independent auditors to assist in such review, during the period of twenty (20) days subsequent to the receipt of such notice from the Corporation (the “Objection Period”). If, during the Objection Period, the Designee does not deliver to the Corporation an Objection Statement (as that term is defined below), then the Leverage Multiple or Exchange Value, as applicable, shall be deemed to be the amount set forth in the Corporation’s notice. In any event, the cost of any independent auditors engaged by the Designee for such review shall be borne by the holders of Series A Preferred Stock. The Corporation shall assist in all reasonable requests of the Designee in conducting such review, including making available to meet with the Designee members of the Corporation’s management who are familiar with the Corporation’s financial condition and results of operations that are relevant to the computations to be made pursuant to this Paragraph 4D and any independent auditors.

(iii) The Designee may object to the Corporation’s determination of the Leverage Multiple or the Exchange Value, as applicable, by delivering to the Corporation during the Objection Period a statement (the “Objection Statement”) indicating the basis for its objections and the Designee’s determination of the Leverage Multiple or the Exchange Value, as applicable, in which event the Designee and the Corporation shall meet and confer in an effort to resolve such disagreement in good faith during the period of 30 days following the Corporation’s receipt of the Objection Statement. If the Corporation and the Designee resolve such disagreement and execute and deliver a written agreement setting forth such resolution, then the Leverage Multiple or the Exchange Value, as applicable, shall be deemed to be the amount set forth in such agreement.

(iv) If the Designee and the Corporation do not enter into such an agreement on or prior to the 30th day after the Objection Statement is given to the Corporation, then the Corporation and the Designee will (a) retain a firm of certified public accountants chosen randomly by lot from among the “big four” accounting firms other than the firm(s) regularly engaged by the Corporation, ABRY and Austin Ventures (the “Independent Accounting Firm”) to determine the Leverage Multiple or the Exchange Value, as applicable, as soon as practicable and (b) submit to such Independent Accounting Firm at the time of such retention the Corporation’s final determination of the Leverage Multiple or the Exchange Value, as the case may be (the “Corporation Assertion”), in the case of the Corporation, and the Designee’s final determination of the Leverage Multiple or the Exchange Value, as the case may be (the “Designee Assertion”), in the case of the Designee. The Independent Accounting Firm shall only decide the specific items under dispute by the parties and shall be instructed to determine the Leverage Multiple or the Exchange Value, as applicable, in accordance with the principles set forth in these Articles of Incorporation, which determination must be an amount that is not greater than the greater of, and not less than the lesser of, the Corporation Assertion and the Designee Assertion. The Leverage Multiple or the Exchange Value, as applicable, as determined by the Independent Accounting Firm will be conclusive and binding upon the Corporation and the holders of Series A Preferred Stock. As between the Corporation and the holders of Series A Preferred Stock the party (or the holders of the Series A Preferred Stock, in the case of the Designee) whose assertion as to the Leverage Multiple or the Exchange Value, as applicable, is the greater of the two assertions (such amount, the “Greater Assertion”), shall be responsible for paying a portion of the fees and expenses of the Independent Accounting Firm equal to the total fees and expenses of such Independent Accounting Firm multiplied by a

42

fraction, the numerator of which is equal to (A) the amount of the Greater Assertion less (B) the amount of the Leverage Multiple or the Exchange Value, as applicable, determined by the Independent Accounting Firm and the denominator of which is equal to (X) the amount of the Greater Assertion less (Y) the amount of the other assertion, and the other party (or the holders of the Series A Preferred Stock, in the case of the Designee) shall be responsible for paying the remainder of such fees and expenses.

4E. The Corporation shall give notice to the holders of the outstanding shares of Series A Preferred Stock in advance of, or following, any Acceleration Event. Following any Acceleration Event, the following shall apply:

(i) If a Dividend Election has not been previously made, the holders of a majority of the outstanding shares of Series A Preferred Stock shall have the right to make a Dividend Election within the Dividend Election Period with respect to such Acceleration Event, in which event the Exchange Value shall be calculated as of the date of such Dividend Election. If the holders of a majority of the outstanding shares of Series A Preferred Stock make a Dividend Election within such Dividend Election Period with respect to such Acceleration Event, then (A) the Dividend Rate shall increase by an additional 3% per annum above the then-applicable Dividend Rate, and by an additional 1% per annum at the end of each 90-day period thereafter, up to a maximum rate of 24%; provided that, if such Acceleration Event is a Leverage Acceleration Event, the Dividend Rate shall not be subject to any further increases pursuant to this subparagraph 4E(i) by reason of such Leverage Acceleration Event from the first date upon which the Leverage Multiple no longer exceeds the Permitted Leverage Multiple in effect immediately prior to such Leverage Acceleration Event, subject to the following sentence, (B) the Exchange Value for the Series A Preferred Stock as of the Dividend Election Date shall be computed using the applicable multiple described in clause (ii) of the definition of EBITDA Multiple, and (C) the Dividend Increase Trigger shall increase as described in Paragraph 4E(iii) below. If the holders of a majority of the outstanding shares of Series A Preferred Stock make a Dividend Election within such Dividend Election Period and the Corporation redeems the Series A Preferred Stock pursuant to Part 3 hereof within thirty (30) days following the later of (X) the date of the Acceleration Event and (Y) the date upon which the Series A Redemption Price is finally determined following the making of such Dividend Election, then the Series A Redemption Price shall be calculated as if the Acceleration Event (and any related incurrence of Funded Debt and the application of any proceeds thereof) had never occurred and the EBITDA Multiple for purposes of calculating the Series A Redemption Price shall be the multiple described in clause (i) of the definition of EBITDA Multiple, and the Dividend Rate will not be deemed to have been increased pursuant to the immediately preceding sentence. If the holders of a majority of the Series A Preferred Stock do not make a Dividend Election within the Dividend Election Period with respect to such Acceleration Event, then all breaches of Paragraph 4C which resulted in such Acceleration Event shall be deemed to be waived by the holders of the Series A Preferred Stock, the Dividend Rate shall not be increased as a result of such Acceleration Event, and, if such Acceleration Event is a Leverage Acceleration Event, the Dividend Increase Trigger shall increase as described in Paragraph 4E(iii) below.

(ii) If the holders of a majority of the outstanding shares of Series A Preferred Stock have previously made a Dividend Election, then upon such Acceleration Event, (A) the Dividend Rate shall increase by an additional 3% per annum above the then-applicable

43

Dividend Rate, and by an additional 1% per annum at the end of each 90-day period thereafter, up to a maximum rate of 24%; provided that if such Acceleration Event is a Leverage Acceleration Event, the Dividend Rate shall not be subject to any further increases pursuant to this subparagraph 4E(ii) by reason of such Leverage Acceleration Event from the first date upon which the Leverage Multiple no longer exceeds the Permitted Leverage Multiple in effect immediately prior to such Leverage Acceleration Event, (B) the Exchange Value for the Series A Preferred Stock as of the Dividend Election Date shall be recomputed using the applicable multiple described in clause (iii) of the definition of EBITDA Multiple (provided that no dividends that have accrued on the Series A Preferred Stock prior to the date of such Acceleration Event shall be recomputed and dividends that accrue on the Series A Preferred Stock following the date of such Acceleration Event shall accrue on the Liquidation Value based on such recomputed Exchange Value), and (C) the Dividend Increase Trigger shall increase as described in Paragraph 4(E)(iii) below, in each case subject to the following sentence. If the Corporation redeems the Series A Preferred Stock pursuant to Paragraph 3C hereof within thirty (30) days following the later of (X) the date of the Acceleration Event and (Y) the date upon which such recomputed Exchange Value is finally determined, then the Series A Redemption Price shall be calculated as if such Acceleration Event (and any related incurrence of Funded Debt and the application of any proceeds thereof) had never occurred, the EBITDA Multiple for purposes of calculating the Series A Redemption Price shall be the multiple described in clause (iv) of the definition of EBITDA Multiple and the Dividend Rate will not be deemed to have been increased pursuant to clause (ii)(A) above.

(iii) In addition to the remedies and effects described in Paragraphs 4E(i) and (ii) above, upon the occurrence of a Leverage Acceleration Event, the Dividend Increase Trigger shall be increased as of the date of such Leverage Acceleration Event to the Leverage Multiple that exists on the date of issuance of any Company Securities or Triggering Funded Debt that resulted in such Acceleration Event, and all such Company Securities shall be Permitted Senior Securities.

4F. The adjustments, rights and remedies set forth in Paragraph 4E above constitute the sole remedy and right of recovery against the Corporation for any and all claims by the holders of Series A Preferred Stock in connection with any breaches of Paragraph 4C (other than Paragraph 4C(ix)) above or Paragraph 1G (other than Paragraph 1G(i)) of the Shareholders Agreement, and each holder of Series A Preferred Stock hereby waives all other remedies, whether at law or in equity in connection with any such breach. Subject to the adjustments, rights and remedies set forth in Paragraph 4E above, upon delivery of the notice required by the initial sentence of Paragraph 4E, all breaches of Paragraph 4C (other than Paragraph 4C(ix)) described in such notice or Paragraph 1G (other than Paragraph 1G(i)) of the Shareholders Agreement shall be deemed to be waived by the holders of Series A Preferred Stock and any Company Securities issued in breach of Paragraph 4C(ii) described in such notice will constitute Permitted Senior Securities. All other terms contained in these Articles of Incorporation will remain in full force and effect.

4G. Upon a Tax Valuation Event, (i) if a Dividend Election has been made, then (A) the Exchange Value and Liquidation Value for the Series A Preferred Stock as of the Dividend Election Date shall be recomputed as set forth in the Recapitalization Agreement, and (B) all dividends that have accrued on the Series A Preferred Stock prior to the date of such Tax

44

Valuation Event and dividends that accrue on the Series A Preferred Stock following the date of such Tax Valuation Event shall accrue or shall be deemed to have accrued on the Liquidation Value based on such recomputed Exchange Value, and (ii) holders of the Recapitalization Common Stock held by each of ABRY, PPM, NYLife and Capital Resources Lenders II, L.P. on the date hereof shall be entitled to receive additional shares of Class A Common Stock pursuant to the Recapitalization Agreement. This Paragraph 4G shall terminate upon the earlier of (i) the consummation of an Initial Public Offering and (ii) the consummation of a Sale of the Company unless, in each case, the Internal Revenue Service has notified the Corporation or any Subsidiary of its intention to conduct an audit which could result in a Tax Valuation Event prior to the consummation of the events described in subsection (i) and (ii) of this sentence.

Part 5. Conversion.

The holders of Series A Preferred Stock shall have conversion rights as follows (the “Conversion Rights”):

5A. Right to Convert. Prior to the delivery of a Dividend Election, each share of Series A Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share, at the office of the Corporation or any transfer agent for such share, into one share (the “Series A Conversion Factor”) of Class A Common Stock (or Common Stock of the Corporation at such time as the Corporation shall have only one class of Common Stock).

5B. Automatic Conversion. Each share of Series A Preferred Stock shall automatically be converted, as described in Paragraph 5A above, into the applicable number of fully paid and non-assessable shares of Class A Common Stock immediately prior to (i) a Qualified Public Offering, (ii) a Liquidation Event, (iii) a Sale of the Company, (iv) the expiration of the Dividend Election Period that begins on the date of the EBITDA Determination for the quarterly period ending June 30, 2008 or (v) the election of the holders of a majority of the Series A Preferred Stock, in each case if a Dividend Election has not been made prior to such event.

5C. Mechanics of Conversion. Before any holder of Series A Preferred Stock shall be entitled to convert shares of Series A Preferred Stock into shares of Class A Common Stock, such holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for such shares, and shall give written notice to the Corporation at such office that such holder elects to convert the same and shall state therein the name or names in which the certificate or certificates for shares of Class A Common Stock are to be issued. The Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Series A Preferred Stock a certificate or certificates for the number of shares of Class A Common Stock to which the holder shall be entitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of surrender of the shares of Series A Preferred Stock to be converted, and the Person or Persons entitled to receive the shares of Class A Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Class A Common Stock on such date. In the event of an automatic conversion of the Series A Preferred

45

Stock, the conversion of the shares of Series A Preferred Stock shall be treated as having been made effective as of the date of the event resulting in the automatic conversion.

5D. Reservation of Common Stock. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Class A Common Stock, solely for the purpose of effecting the conversion of the Series A Preferred Stock, such number of its shares of Class A Common Stock as shall from time to time be sufficient to effect the conversion of all issued and outstanding Series A Preferred Stock; and if at any time the number of authorized but unissued shares of Class A Common Stock shall not be sufficient to effect the conversion of all then outstanding Series A Preferred Stock, in addition to such other remedies as shall be available to the holders of such Series A Preferred Stock, the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Class A Common Stock to such number of shares as shall be sufficient for such purposes.

5E. Adjustments for Dividends, Combinations or Subdivisions of Common Stock. In the event that the Corporation at any time or from time to time after the date hereof shall declare or pay any dividend on the Common Stock payable in Common Stock or in any right to acquire Common Stock, or shall effect a subdivision of the outstanding shares of Common Stock into a greater number of shares of Common Stock (by stock split, reclassification or otherwise), or in the event the outstanding shares of Common Stock shall be combined or consolidated, by reclassification or otherwise, into a lesser number of shares of Common Stock, then, concurrently with the effectiveness of such event, the Series A Conversion Factor in effect immediately prior to such event shall be equitably proportionately decreased or increased, as appropriate.

5F. Other Adjustments. In case of any reorganization or any reclassification of the capital stock of the Corporation, any consolidation, merger or share exchange of the Corporation with or into another Person or Persons (other than a consolidation or merger deemed to be a liquidation, dissolution or winding up of the Corporation as provided in Paragraph 2B above), each share of Series A Preferred Stock shall thereafter be convertible into the number of shares of stock or other securities or property (including cash) to which a holder of the number of shares of Common Stock deliverable upon conversion of such share of Series A Preferred Stock would have been entitled upon the record date of (or date of, if no record date is fixed) such reorganization, reclassification, consolidation, merger or share exchange; and, in any case appropriate adjustment (as determined by the Board of Directors in good faith) shall be made in the application of the provisions herein set forth with respect to the rights and interests thereafter of the holders of Series A Preferred Stock to the end that the provisions set forth herein shall thereafter be applicable, as nearly equivalent as is practicable, in relation to any shares of stock or the securities or property (including cash) thereafter deliverable upon the conversion of the shares of Series A Preferred Stock.

5G. No Impairment. The Corporation will not, by amendment of these Articles of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation but will at all times in good faith assist in the carrying out of all the provisions of

46

this Part 5 and in the taking of all such action as may be necessary or appropriate in order to protect the conversion right of the holders of the Series A Preferred Stock against impairment.

5H. Issue Taxes. The Corporation shall pay any and all issue and other taxes that may be payable in respect of any issue or delivery of shares of Class A Common Stock on conversion of shares of Series A Preferred Stock; provided, however, that the Corporation shall not be obligated to pay any transfer taxes resulting from any transfer requested by any holder in connection with any such conversion.

Part 6. Registration of Transfers. The Corporation will keep at its principal office a register for the registration of shares of Series A Preferred Stock and Common Stock. Upon the surrender of any certificate representing shares of Series A Preferred Stock or Common Stock at such place, the Corporation will, at the request of the record holder of such certificate, execute and deliver (at the Corporation’s expense) a new certificate or certificates in exchange therefor representing in the aggregate the number of shares of Series A Preferred Stock or Common Stock represented by the surrendered certificate. Each such new certificate will be registered in such name and will represent such number of shares of Series A Preferred Stock or Common Stock as is requested by the holder of the surrendered certificate and will be substantially identical in form to the surrendered certificate, and dividends will accrue on the shares of Series A Preferred Stock or Common Stock represented by such new certificate from the date to which dividends have been fully paid on such shares of Series A Preferred Stock or Common Stock represented by the surrendered certificate.

Part 7. Replacement.

Upon receipt of evidence reasonably satisfactory to the Corporation (an affidavit of the registered holder will be satisfactory) of the ownership and the loss, theft, destruction or mutilation of any certificate evidencing shares of Series A Preferred Stock or Common Stock, and in the case of any such loss, theft or destruction, upon receipt of indemnity reasonably satisfactory to the Corporation or, in the case of any mutilation, upon surrender of such certificate the Corporation will (at its expense) execute and deliver in lieu of such certificate a new certificate of like kind representing the number of shares of Series A Preferred Stock or Common Stock represented by such lost, stolen, destroyed or mutilated certificate, and dividends will accrue on the shares of Series A Preferred Stock or Common Stock represented by such new certificate from the date to which dividends have been fully paid on such lost, stolen, destroyed or mutilated certificate.

Part 8. Definitions.

“ABRY” means ABRY Partners IV, L.P. and ABRY Investment Partnership, L.P., collectively.

“Acceleration Event” means a Covenant Breach and/or a Leverage Acceleration Event.

“Accrual Premium” for any Funded Debt or Company Securities as of any date means (a) the sum of any original issue discount applicable to such Funded Debt or Company Security plus, without duplication, the aggregate amount of interest, dividend or other yield that will accrue on such Funded Debt or Company Security in accordance with its terms from such date

47

through the date of its maturity or the date upon which it is required to be repurchased or redeemed less (b) the aggregate amount of Market Yield Accrual for such Funded Debt or Company Security from such date through such maturity, repurchase or redemption date.

“Affiliate” means with respect to any Person, a Person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such Person, and, in the case of an individual, includes any relative or spouse of such individual, or any relative or such spouse, who has the same home as such individual. The term “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. For purposes hereof, with respect to ABRY, the term “Affiliate” shall also include any limited partner or general partner of either ABRY Partners IV, L.P. or ABRY Investment Partnership, L.P. and any Affiliate of any such general partner or limited partner.

“Appraisal Firm” shall mean a nationally recognized investment banking or appraisal firm that, at the time in question, is not engaged, and during the preceding three years has not been engaged, by the Corporation or any Affiliate thereof.

“Assets” means the assets of the Company and its Subsidiaries on a consolidated basis, determined in accordance with GAAP, as of the end of the preceding fiscal quarter.

“Austin Ventures” means Austin Ventures III and Austin Ventures V, collectively.

“Austin Ventures III” means Austin Ventures III-A, L.P. and Austin Ventures III-B, L.P., collectively.

“Austin Ventures V” means Austin Ventures V, L.P. and Austin Ventures V Affiliates Fund, L.P., collectively.

“Board” means the board of directors of the Corporation.

“Capital Lease Obligation” means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized on a balance sheet in accordance with GAAP.

“Class A Common Stock” has the meaning provided in the introductory Paragraph of Article Four.

“Class B Common Stock” has the meaning provided in the introductory Paragraph of Article Four.

“Consolidated Cash Flow” means for any period, the Consolidated Net Income of the Corporation and its Subsidiaries plus, to the extent deducted in computing such Consolidated Net Income:

(i) provision for taxes based on income or profits of the Corporation and its Subsidiaries;

48

(ii) consolidated interest expense of the Corporation and its Subsidiaries, whether paid or accrued and whether or not capitalized (including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers’ acceptance financings, and net costs (if any) pursuant to Hedging Obligations); and

(iii) depreciation, amortization (including amortization of goodwill and other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash charges (excluding any such non-cash charges to the extent that they represent an accrual of or reserve for cash payments to be made in any future period or amortization of a prepaid cash expense that was paid in a prior period) of the Corporation and its Subsidiaries.

“Common Stock” means, collectively, the Corporation’s Class A Common Stock and Class B Common Stock, par value $.01 per share, and any capital stock of any class of the Corporation hereafter authorized that is not limited to a fixed sum or percentage of par or stated value in respect to the rights of the holders thereof to participate in dividends or in the distribution of assets upon any liquidation, dissolution or winding up of the Corporation.

“Company Securities” means any Equity Security of the Corporation.

“Consolidated Net Income” means the aggregate of the Net Income of the Corporation and its Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that:

(i) the Net Income of any Person that is not a Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash to the Corporation or a Subsidiary thereof;

(ii) any extraordinary gain or loss, together with any related provision for taxes on such gain or loss, shall be excluded;

(iii) any acquisition or divestiture by the Corporation or its Subsidiaries consummated during such period (or, with respect to any fiscal quarter, after the end of such fiscal quarter but on or prior to the date as of which EBITDA (LQA) is being determined, for purposes of determining EBITDA (LQA)), shall be given effect on a pro forma basis as if such acquisition or divestiture had been consummated on the first day of such period;

(iv) any gain or loss from foreign exchange transactions shall be excluded;

(v) the cumulative effect of a change in accounting principles shall be excluded;

49

(vi) any non-cash compensation expense in connection with the issuance of employee or independent contractor stock options shall be excluded; and

(vii) any amount paid or accrued as dividends on capital stock of any Subsidiary owned by Persons other than the Corporation and any of its Subsidiaries shall be excluded.

“Control Affiliate” means an Affiliate in which the Corporation (directly or indirectly) owns or holds any Equity Securities.

“Covenant Breach” means a breach by the Corporation of the covenants set forth in Paragraph 4C hereof (other than the covenant set forth in Paragraph 4C(ii)) or Paragraph 1G of the Shareholders Agreement (other than the covenant set forth in Paragraph 1G(b) of the Shareholders Agreement).

“Credit Agreement” means the Credit Agreement dated as of August 25, 2003 by and between the Corporation and certain lenders, as such agreement may be amended, modified, supplemented, extended or replaced from time to time.

“Debt Amount” as of any date means the sum, without duplication, of the amount of all Funded Debt and the aggregate of the liquidation preferences, and in each case, including Market Yield Accrual thereon as of such date and all applicable Accrual Premiums of all Company Securities outstanding on such date, but excluding for the purpose of such calculation the liquidation and dividend rights of the outstanding Series A Preferred Stock, any portion of such unpaid Market Yield Accrual that is a current liability as of such date and that is not yet due and payable.

“Designee” has the meaning provided for in Paragraph 4D.

“Dividend Election” means the delivery by the holders of a majority of the outstanding shares of Series A Preferred Stock of a notice to the Corporation of an election to begin accruing dividends on the shares of Series A Preferred Stock. Such election may only be given during a Dividend Election Period, may not be revoked and shall be binding on all holders of Series A Preferred Stock.

“Dividend Election Date” means the date on which a Dividend Election is made.

“Dividend Election Period” means (i) the respective 30-day periods subsequent to the date that the Exchange Value is determined pursuant to Paragraph 4D for the quarterly periods ending on June 30, 2005, December 31, 2006 and June 30, 2008 and (ii) with respect to any actual or proposed Acceleration Event, the ten day period following the date the Corporation delivers a notice of an Acceleration Event.

“Dividend Increase Trigger” means 4.8 (as such number may be increased from time to time pursuant to Paragraph 4E hereof).

“Dividend Rate” has the meaning provided in Article Four, Paragraph 1A.

50

“Dividend Reference Date” has the meaning provided in Article Four, Paragraph 1B.

“EBITDA (LQA)” as of any date means the product of (A) the Consolidated Cash Flow for the preceding fiscal quarter, multiplied by (B) four.

“EBITDA Multiple” means (i) 5.5, if (X) an Acceleration Event has never occurred, (Y) the holders of a majority of the Series A Preferred Stock have not made a Dividend Election during any Dividend Election Period with respect to all prior Acceleration Events, or (Z) an Acceleration Event has occurred but the Corporation redeems the Series A Preferred Stock pursuant to Part 3 hereof within thirty (30) days following the later of (a) the date of such Acceleration Event and (b) the date the Series A Redemption Price is finally determined following delivery of a Dividend Election during the Dividend Election Period with respect to such Acceleration Event, (ii) if a Dividend Election has not been previously made and an Acceleration Event has occurred and if a Dividend Election is made during the Dividend Election Period with respect to such Acceleration Event and the situation described in clause (i)(Z) above does not apply, the greater of (a) 5.5 and (b) the sum of 1.0 plus the Leverage Multiple that exists immediately following such Acceleration Event, (iii) if a Dividend Election has been previously made and an Acceleration Event occurs, (a) the sum of 0.5 plus the EBITDA Multiple that was used to calculate the Exchange Value at the time the Dividend Election was made, in the event of a Covenant Breach requiring retroactive recalculation of the Exchange Value pursuant to Paragraph 4E(ii) or (b) the sum of 1.0 plus the Leverage Multiple that exists immediately following such Leverage Acceleration Event requiring recalculation of the Exchange Value pursuant to Paragraph 4E(ii) if such sum is greater than the EBITDA Multiple that was used to calculate the Exchange Value at the time a Dividend Election was made, in the event of a Leverage Acceleration Event requiring retroactive recalculation of the Exchange Value, or (iv) the EBITDA Multiple that would have been applicable if the Acceleration Event in question had never occurred.

“Equity Securities” means any capital stock, joint venture interest or similar security, including without limitation, securities containing equity features and securities containing profit participation features, or any security convertible, exercisable or exchangeable, with or without consideration, into or for any stock, joint venture interest or similar security, or any security carrying any warrant or right to subscribe for or purchase any stock, joint venture interest or similar security, or any such warrant or right.

“Exchange Value” means the amount that would be received by holders of the Series A Preferred Stock upon a liquidation of the Corporation pursuant to Part 2 hereof, assuming the conversion of all shares of Series A Preferred Stock immediately prior to such liquidation, if the total amount of assets or funds of the Corporation legally available for distribution to shareholders of the Corporation at the time of such liquidation were equal to (a) the sum of (i) the applicable EBITDA Multiple multiplied by EBITDA (LQA) plus (ii) cash of the Corporation and its Subsidiaries (determined in accordance with GAAP) in excess of $2.0 million less (b) the amount of (i) Funded Debt (excluding from the definition of Funded Debt any debt or obligations of the Corporation that result in an Acceleration Event if the Corporation redeems the shares of Series A Preferred Stock pursuant to the terms of Paragraph 4E(i) or Paragraph 4E(ii)) and (ii) accrued dividends on the Series A Preferred Stock, in each case on the applicable date of determination.

51

“Fair Market Value” means the value of the Company Securities in question (a) determined in good faith by the Board if 20% or more of such Company Securities are being issued to one or more Persons that are neither ABRY nor an Affiliate of ABRY and (b) either as agreed by the Corporation and the holders of a majority of the Series A Preferred Stock or, in the absence of such an agreement, as determined by an Appraisal Firm selected by the holders of a majority of the Series A Preferred Stock and approved by the Corporation (such consent not to be unreasonably withheld or delayed), if more than 80% of such Company Securities are being issued to Persons that are either ABRY or an Affiliate of ABRY. The determination of such Appraisal Firm shall be final and binding on the Corporation and the holders of the Series A Preferred Stock, and the fees and expenses of such Appraisal Firm shall be paid by the Corporation.

“fair market value” means the price at which an asset would change hands between a willing buyer and a willing seller when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, and both parties are able, as well as willing, to trade and are well-informed about the asset and the market for the asset.

“Funded Debt” means any indebtedness of the Corporation and its Subsidiaries on a consolidated basis, whether or not contingent, in respect of:

(1) borrowed money, including without limitation indebtedness under the Credit Agreement;

(2) evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof);

(3) banker’s acceptances;

(4) Capital Lease Obligations;

(5) the balance deferred and unpaid of the purchase price of any property, except any such balance that constitutes an accrued expense or trade payable; or

(6) any Hedging Obligations;

if and to the extent any of the preceding items (other than letters of credit and Hedging Obligations) would appear as a liability upon a consolidated balance sheet of the Corporation and its Subsidiaries prepared in accordance with GAAP. In addition, the term “Funded Debt” includes all Funded Debt of others secured by the Lien on any asset of the Corporation or its Subsidiaries (whether or not such Funded Debt is assumed by the Corporation or any of its Subsidiaries) the amount of such Funded Debt being deemed to be the lesser of the value of such property or asset or the amount of the Funded Debt so secured and, to the extent not otherwise included, the Guarantee by the Corporation or its Subsidiaries of any Funded Debt of any other Person; provided that Funded Debt shall not include:

(x) any amounts withheld by the Corporation or any Subsidiary from the purchase price paid for the purchase of subscriber accounts;

52

(y) obligations in respect of letters of credit to support workers compensation obligations, performance bonds, bankers’ acceptances and surety or appeal bonds provided by the Corporation or any of its Subsidiaries to their customers in the ordinary course of their business; and

(z) obligations arising from agreements providing for indemnification, adjustment of purchase price or similar obligations, or from guarantees or letters of credit, surety bonds or performance bonds securing any obligations of the Corporation or any of its Subsidiaries pursuant to such agreements, in each case incurred in connection with the disposition of any business assets or Subsidiaries of the Corporation (other than guarantees of obligations or other obligations incurred by any Person acquiring all or any portion of such business assets or Subsidiaries of the Corporation for the purpose of financing such acquisition) in a principal amount not to exceed the gross proceeds actually received by the Corporation or any of its Subsidiaries in connection with such disposition.

“GAAP” means generally accepted accounting principles in the United States as in effect from time to time; provided that if any change in GAAP would affect the computation of any financial ratio set forth herein, the Exchange Value, or the Leverage Multiple, ABRY and Austin Ventures shall negotiate in good faith to reflect such change in GAAP; provided that, until so amended such financial ratio, Exchange Value or Leverage Multiple shall continue to be computed in accordance with GAAP.

“Governmental Authority” means any agency, arbitrator, authority, commission, court, official tribunal or other instrumentality of the United States of America, any foreign country or any state, county, city or other political subdivision of the United States of America or any foreign country.

“Guarantee” means a guarantee other than by endorsement of negotiable instruments for collection in the ordinary course of business, direct or indirect, in any manner including, without limitation, by way of a pledge of assets or through letters of credit or reimbursement agreements in respect thereof, of all or any part of any Funded Debt.

“Hedging Obligations” of any Person means the net obligations of such Person under:

(i) interest rate protection agreements, interest rate swap agreements, interest rate cap agreements and interest rate collar agreements, interest rate futures and interest rate options;

(ii) other agreements or arrangements designed to protect such Person against fluctuations in interest rates; and

(iii) any foreign exchange contract, currency swap agreement or other similar agreement or arrangement.

“Indenture” means the Indenture between the corporation and The Bank of New York Trust Company, N.A. (f/k/a The Bank of New York Trust Company of Florida, N.A.), as trustee,

53

dated August 25, 2003, as such indenture may be amended, modified, supplemented or replaced from time to time.

“Independent Accounting Firm” has the meaning provided for in Paragraph 4D.

“Initial Public Offering” means the initial sale of Class A Common Stock in a firm commitment, underwritten public offering registered under the Securities Act (other than a registration relating solely to a transaction under Rule 145 under the Securities Act or to an employee benefit plan of the Corporation).

“Junior Securities” means any Company Securities, except for the Series A Preferred Stock and the Permitted Senior Securities.

“Leverage Acceleration Event” means a breach by the Corporation of the covenant set forth in Paragraph 4C(ii) hereof or Paragraph 1G(b) of the Shareholders Agreement as a result of which the Leverage Multiple exceeds the Permitted Leverage Multiple.

“Leverage Multiple” means the number derived by dividing the Debt Amount by EBITDA (LQA), as of the date of determination.

“Lien” means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law, including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction.

“Liquidation Event” has the meaning provided in Article Four, Paragraph 2A.

“Liquidation Value” means a fraction, the numerator of which is equal to the Exchange Value (as of the Dividend Election Date and as adjusted or recalculated pursuant to the terms hereof) and the denominator of which is equal to the number of shares of Series A Preferred Stock outstanding.

“Market Rate” for any Funded Debt or Company Security means that portion of the dividend rate, interest rate, original issue discount, or yield applicable to such Funded Debt or Company Security that is equal to the dividend rate, interest rate, original issue discount, or yield that would apply to similar securities issued by similarly situated companies at the time such Funded Debt or Company Security was incurred or issued.

“Market Yield Accrual” means the interest, yield, or dividend accrual, or original issue discount amortization on any Funded Debt or Company Security at the applicable Market Rate (treating any Accrual Premium for such Funded Debt or Company Security as part of the principal amount thereof or other amount upon which such yield or dividend accrues).

“Maximum Rate” has the meaning provided in Article Four, Paragraph 1A.

54

“Measurement Date” means any date upon which the Corporation or any Subsidiary or Control Affiliate acquires an ancillary business.

“Net Income” means, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP.

“Notes” means the Corporation’s (i) Senior Subordinated Notes due 2010 issued under the Indenture and (ii) 13.5% Subordinated Notes issued pursuant to the Subordinated Note Agreement.

“NYLife” means New York Life Capital Partners II, L.P.

“Objection Period” has the meaning provided for in Paragraph 4D.

“Objection Statement” has the meaning provided for in Paragraph 4D.

“Permitted Leverage Multiple” means the sum of (i) the Dividend Increase Trigger plus (ii) (A) 0.3, at any time when the Leverage Multiple is less than or equal to 5.0, or (B) 0.1, at any time when the Leverage Multiple is greater than 5.0. For the avoidance of doubt, the Permitted Leverage Multiple shall increase from time to time when the Dividend Increase Trigger increases pursuant to Paragraph 4E hereof.

“Permitted Senior Securities” has the meaning provided in Article Four, Paragraph 4C(ii).

“Person” means an individual, a partnership, a corporation, an association, a joint stock company, a trust, a joint venture, a limited liability company, an unincorporated organization or other similar entity organization or a Governmental Authority.

“PPM” means PPM America Private Equity Fund LP.

“Qualified Public Offering” means the sale of the Class A Common Stock (or Common Stock of the Corporation at such time as the Corporation shall have only one class of Common Stock) in a firm commitment, underwritten public offering registered under the Securities Act (other than a registration relating solely to a transaction under Rule 145 of the Securities Act or to an employee benefit plan of the Corporation) at a price (prior to underwriters’ commissions and expenses) equal to or exceeding $6.50 per share (as such amount is equitably adjusted for subsequent stock splits, stock combinations and stock dividends affecting the Class A Common Stock after the Recapitalization) and resulting in gross proceeds of at least $50,000,000.

“Revenues” means the revenues of the Company and its Subsidiaries on a consolidated basis for the preceding fiscal quarter, determined in accordance with GAAP, multiplied by four.

“Recapitalization” has the meaning set forth in the Shareholders Agreement.

“Recapitalization Agreement” means the Recapitalization Agreement, dated July 14, 2004, among the Corporation and the parties listed on the signature pages thereto.

“Sale of the Company” has the meaning set forth in the Shareholders Agreement.

55

“Securities Act” means the Securities Act of 1933, as amended, or any similar federal law then in force and the rules promulgated thereunder.

“Series A Liquidation Preference” has the meaning provided in Article Four, Paragraph 2A(i).

“Series A Mandatory Redemption” has the meaning provided in Article Four, Paragraph 3B.

“Series A Mandatory Redemption Date” has the meaning provided in Article Four, Paragraph 3B.

“Series A Mandatory Redemption Failure” means the failure of the Corporation to redeem the Series A Preferred Stock on the Series A Mandatory Redemption Date.

“Series A Optional Redemption Date” has the meaning provided in Article Four, Paragraph 3C.

“Series A Preferred Stock” has the meaning provided in the introductory Paragraph of Article Four.

“Series A Public Offering Mandatory Redemption” has the meaning provided in Article Four, Paragraph 3A.

“Series A Public Offering Mandatory Redemption Date” has the meaning provided in Article Four, Paragraph 3A.

“Series A Redemption Price” has the meaning provided in Article Four, Paragraph 3D.

“Shareholders Agreement” means the Fifth Amended and Restated Shareholders Agreement, dated as of July 14, 2004, among the Corporation and certain investors, as such agreement may from time to time be amended, modified, replaced or supplemented in accordance with its terms.

“Subordinated Note Agreement” means the Subordinated Note and Warrant Purchase Agreement, dated as of January 18, 2002, between the corporation and certain investors, as such agreement may be amended, modified, supplemented or replaced from time to time.

“Subsidiary” means (i) any corporation where more than 50% of the outstanding voting securities or ordinary voting power to elect a majority of the board of directors is owned by the Corporation or any other Subsidiary, directly or indirectly, or (ii) a partnership or limited liability company in which the Corporation or any other Subsidiary is a general partner or manager or holds interests entitling it to receive more than 50% of the profits or losses of the partnership or limited liability company.

“Tax Valuation Event” means an audit of the Corporation or its Subsidiaries conducted by the Internal Revenue Service which results in (i) a final determination by the Internal Revenue Service that the Corporation or its Subsidiaries have improperly amortized the life of

56

subscriber accounts over a ten year period and should have amortized the life of subscriber accounts over a period greater than ten years, and (ii) requirements that the Corporation (A) restate its tax returns to increase the length of time over which it amortizes the life of its subscriber accounts to a period greater than ten years and (B) amortize the life of subscriber accounts on future tax returns over a period greater than ten years; provided that the Corporation or such Subsidiary receives notification from the Internal Revenue Service of such audit within two years following the date hereof and subject to the other provisions contained in Section 2(h)(iii) of the Recapitalization Agreement.

“Triggering Funded Debt” means Funded Debt described in subsections (1), (2), (4) and (5) of the definition of Funded Debt; provided that Triggering Funded Debt shall not include any draw down by the Company or its Subsidiaries under the Credit Agreement; provided further that the outstanding principal amount of indebtedness under the Credit Agreement upon such draw down does not exceed the Aggregate Commitments (as that term is defined in the Credit Agreement as in effect on the date of consummation of the Recapitalization) on the date of such draw down.

Part 9. Amendment and Waiver. Without limiting Paragraph 4C(vii), no amendment, modification or waiver of this Article Four of these Articles of Incorporation will be binding or effective with respect to any provision of these terms without the prior written consent or vote at a duly constituted meeting of the holders of a majority of the outstanding shares of Class A Common Stock voting as a separate series. No amendment, modification or waiver of this Article Four of these Articles of Incorporation may be accomplished by merger or consolidation of the Corporation with another Person unless the Corporation has obtained the prior written consent or vote at a duly constituted meeting of the holders of a majority of the outstanding shares of Class A Common Stock voting as a separate series.

Part 10. Notices. All notices referred to herein will be in writing and will be personally delivered, delivered by facsimile or courier service, or mailed, certified with first class postage prepaid, to i) the address set forth on the books of the corporation, in the case of communications to a shareholder, and ii) the principal executive offices of the corporation, in the case of the corporation. Each such notice, request, demand, or other communication shall be deemed to have been given and received (whether actually received or not) on the date of actual delivery thereof, if personally delivered or delivered by facsimile transmission (if receipt is confirmed at the time of such transmission by telephone), or on the third day following the date of mailing, if mailed in accordance with this Paragraph, or on the day specified for delivery to the courier service (if such day is one on which the courier service will give normal assurances that such specified delivery will be made). Any notice, request, demand, or other communication given otherwise than in accordance with this Paragraph shall be deemed to have been given on the date actually received. Any shareholder may change its address for purposes of this Paragraph by giving written notice of such change to the corporation in the manner herein above provided. Whenever any notice is required to be given by law or by these Articles of Incorporation, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of notice.

57

Class A Common Stock and Class B Common Stock

Part 11. Rights of Common Stock.

11A. Except as otherwise provided herein, all shares of Class A Common Stock and Class B Common Stock will be identical and will entitle the holders thereof to the same rights and privileges. Each holder of Class A Common Stock will be entitled to one vote per share of Class A Common Stock held by such holder. Except as otherwise provided in these Articles of Incorporation or as expressly required by any mandatory provision of the Texas Business Corporation Act, the holders of Class B Common Stock will have no right to vote their shares of Class B Common Stock on any matters to be voted on by the shareholders of the corporation and hereby expressly waive to the extent permitted by the Texas Business Corporation Act any other such rights to vote.

Part 12. Conversion of Class B Common Stock.

12A. At any time and from time to time, each holder of Class B Common Stock will be entitled to convert any and all of the shares of such holder’s Class B Common Stock into the same number of shares of Class A Common Stock at such holder’s election; provided, that each holder of Class B Common Stock shall only be entitled to convert any share or shares of Class B Common Stock to the extent that after giving effect to such conversion such holder or its Affiliates shall not directly or indirectly own, control or have power to vote a greater quantity of securities of any kind issued by the Corporation than such holder and its Affiliates are permitted to own, control or have power to vote under any law or under any regulation, rule or other requirement of any governmental authority at any time applicable to such holder and its Affiliates.

12B. Each conversion of shares of Class B Common Stock into shares of Class A Common Stock will be effected by the surrender of the certificate or certificates representing the shares to be converted at the principal office of the Corporation (or such other office or agency of the Corporation as the Corporation may designate by notice in writing to the holder or holders of the Class B Common Stock) at any time during normal business hours, together with a written notice by the holder of such Class B Common Stock stating that such holder desires to convert the shares, or a stated number of the shares, of Class B Common Stock represented by such certificate or certificates into Class A Common Stock and a written undertaking that upon such conversion such holder and its Affiliates will not directly or indirectly own, control or have the power to vote a greater quantity of securities of any kind issued by the Corporation than such holders and its Affiliates are permitted to own, control or have the power to vote under any applicable law, regulation, rule or other governmental requirement (and such statement will obligate the Corporation to issue such Class A Common Stock). Such conversion will be deemed to have been effected as of the close of business on the date on which such certificate or certificates have been surrendered and such notice has been received, and at such time the rights of the holder of the converted Class B Common Stock as such holder will cease and the Person or Persons in whose name or names the certificate or certificates for shares of Class A Common Stock are to be issued upon such conversion will be deemed to have become the holder or holders of record of the shares of Class A Common Stock represented thereby.

12C. Promptly after such surrender and the receipt of such written notice, the Corporation will issue and deliver in accordance with the surrendering holder’s instructions (i)

58

the certificate or certificates for the Class A Common Stock issuable upon such conversion and (ii) a certificate representing any Class B Common Stock which was represented by the certificate or certificates delivered to the Corporation in connection with such conversion but which was not converted.

12D. If the Corporation in any manner subdivides or combines the outstanding shares of one class of either Class A Common Stock or Class B Common Stock, the outstanding shares of the other class will be proportionately subdivided or combined.

12E. In the case of, and as a condition to, any capital reorganization of, or any reclassification of the capital stock of, the Corporation (other than a subdivision or combination of shares of Class A Common Stock or Class B Common Stock into a greater or lesser number of shares (whether with or without par value) or a change in the par value of Class A Common Stock or Class B Common Stock or from par value to no par value, or from no par value to par value) or in the case of, and as condition to, the consolidation or merger of the Corporation with or into another Corporation (other than a merger in which the Corporation is the continuing corporation and which does not result in any reclassification of outstanding shares of Class A Common Stock or Class B Common Stock), each share of Class B Common Stock shall be convertible into the number of shares of stock or other securities or property receivable upon such reorganization, reclassification, consolidation or merger by a holder of the number of shares of Class A Common Stock of the Corporation into which such share of Class B Common Stock was convertible immediately prior to such reorganization, reclassification, consolidation or merger; and, in any such case, appropriate adjustment shall be made in the application of the provisions set forth in this Paragraph 12E with respect to the rights and interests thereafter of the holders of Class B Common stock to the end that the provisions set forth in this Paragraph 12E (including provisions with respect to the conversion rate) shall thereafter be applicable, as nearly as they reasonably may be, in relation to any shares of stock or other securities or property thereafter deliverable upon the conversion of the shares of Class B Common Stock.

12F. Shares of Class B Common Stock which are converted into shares of Class A Common Stock as provided herein shall not be reissued.

12G. The Corporation will at all times reserve and keep available out of its authorized but unissued shares of Class A Common Stock or its treasury shares, solely for the purpose of issue upon the conversion of the Class B Common Stock as provided in this Part 12, such number of shares of Class A Common Stock as shall then be issuable upon the conversion of all then outstanding shares of Class B Common Stock (assuming that all such shares of Class B Common Stock are held by Persons entitled to convert such shares into Class A Common Stock).

12H. The issuance of certificates for Class A Common Stock upon the conversion of Class B Common Stock will be made without charge to the holders of such shares for any issuance tax in respect thereof or other cost incurred by the Corporation in connection with such conversion and the related issuance of Class A Common Stock. The Corporation will not close its books against the transfer of Class B Common Stock or of Class A Common Stock issued or issuable upon the conversion of Class B Common Stock in any manner which would interfere with the timely conversion of Class B Common Stock.

59

ARTICLE FIVE

The power to cumulate votes (cumulative voting) in the election of directors is hereby expressly prohibited.

The shareholders of the Corporation shall not have a preemptive right to purchase, acquire or subscribe for any unissued, additional or treasury shares of stock of any class or bonds, notes, debentures or other securities convertible into stock of the Corporation or carrying any right to purchase, acquire or subscribe for stock of any class, except as set forth in the Shareholders Agreement.

ARTICLE SIX

The street address of its registered office is 350 North Saint Paul, Suite 2900, Dallas, Texas 75201, and the name of its registered agent at that address is CT Corporation System.

ARTICLE SEVEN

The number of directors is seven. The names of the directors are:

James R. Hull	12801 Stemmons Freeway, Suite 821
	Dallas, Texas 75234-5879
Jay M. Grossman	ABRY Partners, LLC
	111 Huntington Avenue, 30th Floor
	Boston, Massachusetts 02199
Erik Brooks	ABRY Partners, LLC
	111 Huntington Avenue, 30th Floor
	Boston, Massachusetts 02199
Royce Yudkoff	ABRY Partners, LLC
	111 Huntington Avenue, 30th Floor
	Boston, Massachusetts 02199
Brent Stone	ABRY Partners, LLC
	111 Huntington Avenue, 30th Floor
	Boston, Massachusetts 02199
Blaine F. Wesner	Austin Ventures V, L.P.
	300 West 6th Street, Suite 2300
	Austin, Texas 78701

ARTICLE EIGHT

8A. The Corporation shall, to the fullest extent permitted by Section 2.02-1 of the Texas Business Corporation Act, as the same may be amended and supplemented from time

60

to time, indemnify and advance expenses to, (i) its directors and officers, and (ii) any person who at the request of the Corporation is or was serving as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, from and against any and all of the expenses, liabilities, or other matters referred to in or covered by said section as amended or supplemented (or any successor), provided, however, that except with respect to proceedings to enforce rights to indemnification, the by-laws of the Corporation may provide that the Corporation shall indemnify any director, officer or such person in connection with a proceeding (or part thereof) initiated by such director, officer or such person only if such proceeding (or part thereof) was authorized by the Board. The Corporation, by action of its Board, may provide indemnification or advance expenses to employees and agents of the Corporation or other persons only on such terms and conditions and to the extent determined by the Board in its sole and absolute discretion. The indemnification provided for herein shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any by-law, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in their official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee, or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. If the Texas Business Corporation Act is amended after the filing of the Amended and Restated Articles of Incorporation of which this article is a part to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by Texas Business Corporation Act, as so amended. Any repeal or modification of the foregoing paragraph by the shareholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification.

8B. The Corporation may purchase and maintain insurance on its own behalf and on behalf of any person who is or was a director, officer, employee, fiduciary, or agent of the Corporation or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, whether or not the Corporation would have the power to indemnify such person against such liability under Article Eight.

8C. Expenses incurred by any person described Article Eight in defending a proceeding shall be paid by the Corporation in advance of such proceeding’s final disposition unless otherwise determined by the Board in the specific case upon receipt of an undertaking by or on behalf of the director or officer to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the Corporation. Such expenses incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the Board deems appropriate.

8D. Persons who are not covered by the provisions of this Article Eight and who are or were employees or agents of the Corporation, or who are or were serving at the request of the Corporation as employees or agents of another corporation, partnership, joint venture, trust or other enterprise, may be indemnified to the extent authorized at any time or from time to time by the Board.

61

8E. The provisions of Article Eight shall be deemed to be a contract right between the Corporation and each director or officer who serves in any such capacity at any time while these Amended and Restated Articles of Incorporation and the relevant provisions of the Texas Business Corporation Act or other applicable law are in effect, and any repeal or modification of these Amended and Restated Articles of Incorporation or any such law shall not affect any rights or obligations then existing with respect to any state of facts or proceeding then existing.

8F. For purposes of this Article Eight, references to the “Corporation” shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, join venture, trust or other enterprise, shall stand in the same position under this Article Nine with respect to the resulting or surviving corporation as he or she would have with respect to such constituent corporation if its separate existence had continued.

8G. A director of this Corporation shall not be liable to the Corporation or its shareholders for monetary damages for an act or omission in the director’s capacity as a director, except that this provision does not eliminate or limit the liability of a director to the extent the director is found liable for:

(i) a breach of the director’s duty of loyalty to the Corporation or its shareholders;

(ii) an act or omission not in good faith that constitutes a breach of duty of the director to the Corporation or an act or omission that involves intentional misconduct or a knowing violation of the law;

(iii) a transaction from which the director received an improper benefit, whether or not the benefit resulted from an action taken within the scope of the director’s office; or

(iv) an act or omission for which the liability of the director is explicitly provided by an applicable statute.

Any amendment, repeal or modification of the foregoing provision by the shareholders of the Corporation shall not adversely affect any limitation on the liability of any director of the Corporation existing at or prior to the time of such amendment, repeal or modification.

ARTICLE NINE

Any action required by law to be taken at any annual or special meeting of shareholders, or any action that may be taken at any annual or special meeting of shareholders, may be taken without a meeting, without prior notice, and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holder or holders of shares having not less

62

than the minimum number of votes that would be necessary to take such action at a meeting at which the holders of all shares entitled to vote on the action were present and voted.

* * * *

Dated this 14^th day of July, 2004.

MONITRONICS INTERNATIONAL, INC.
By:	/s/  James R. Hull
James R. Hull, President and Chief Executive Officer

[Remainder of page intentionally left blank]

63

EX-10.2

Exhibit 10.2

FIRST AMENDMENT TO CREDIT AGREEMENT

This FIRST AMENDMENT TO CREDIT AGREEMENT (this “Amendment”), dated as of July 14, 2004, amends certain provisions of the Credit Agreement dated as of August 25, 2003 (the “Existing Credit Agreement”) by and among Monitronics International, Inc., a Texas corporation (the “Borrower”), the Lenders from time to time party thereto, Fleet National Bank, as Administrative Agent for the Credit Parties, and Bank of America, N.A., as Syndication Agent for the Credit Parties.

W I T N E S S E T H:

WHEREAS, on the date hereof, the Borrower and the holders of substantially all of the Borrower’s Capital Stock intend to engage in a series of transactions (collectively, the “Recapitalization”) pursuant to which, among other things, (i) the Borrower will amend its Organizational Documents to cancel its various existing series of Preferred Stock and create a new, single series of Preferred Stock, (ii) the Borrower’s principal shareholders will exchange their existing shares of Capital Stock of the Borrower for shares of the new series of Preferred Stock or for common stock of the Borrower and in connection therewith Borrower will redeem certain existing shares of Preferred Stock for an aggregate redemption price of approximately $5,300,000 and (iii) two of the Borrower’s stockholders will sell shares of the Borrower’s common stock received in the share exchange described above to two third parties;

WHEREAS, various aspects of the Recapitalization are prohibited by the Existing Credit Agreement and may not be completed by the Borrower without waivers from the Administrative Agent and the Required Lenders;

WHEREAS, the Borrower has requested that the Administrative Agent and the Required Lenders (i) provide the waivers necessary to permit the Borrower to accomplish the Recapitalization without violating the Existing Credit Agreement and (ii) agree to certain other amendments to the Existing Credit Agreement; and

WHEREAS, upon and subject to the terms hereof, in accordance with Section 11.1 of the Credit Agreement, the Administrative Agent and the Required Lenders hereby provide the waivers specified herein and agree to the amendments to the Existing Credit Agreement specified herein;

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows.

ARTICLE I

DEFINITIONS AND RULES OF INTERPRETATION

Each capitalized term that is used herein and is defined in the Existing Credit Agreement shall have the meaning specified therein unless such term is otherwise defined herein. In addition, the rules of interpretation set forth in Section 1.3 of the Existing Credit Agreement apply herein. As used herein, the term “Credit Agreement” shall mean the Existing Credit

Agreement as amended by and through the date hereof, including by this Amendment, and as further amended, restated, modified, supplemented and/or extended from time to time. This Amendment is a Loan Document.

ARTICLE II

WAIVERS, AMENDMENTS, ETC.

Section 2.1. Waivers. Solely in connection with the Recapitalization, the Administrative Agent and the Required Lenders hereby waive the Borrower’s obligations under the following Sections of the Existing Credit Agreement: Section 8.3(a); Section 8.7; Section 8.11; Section 8.12(a); Section 8.12(b); and Section 8.13.

Section 2.2. Amendments.

(a) Amendment to Schedules. The following Schedules amend, replace and supersede the corresponding Schedules attached to the Existing Credit Agreement:

Schedule 4.5(a)	Properties
Schedule 4.8	Material Agreements and Licenses
Schedule 4.12	Taxes
Schedule 4.13	Ownership of the Borrower and its Subsidiaries

In addition, the following new Schedule shall be added to, and become a part of, the Credit Agreement:

Schedule 4.6 Proceedings

(b) Amendments to Section 1.1. Section 1.1 of the Existing Credit Agreement is hereby amended as follows:

(i) Additional Definitions. The following definitions are hereby added to the Section 1.1 of the Credit Agreement in alphabetical order:

“‘First Amendment’ means the First Amendment to Credit Agreement dated as of the First Amendment Closing Date by and among the Borrower, the Administrative Agent and the Lenders party thereto.”

“‘First Amendment Closing Date’ means July 14, 2004.”

“‘Stock Restriction Agreement’ means a Restricted Stock Ownership Agreement between the Borrower or a Subsidiary of the Borrower and an employee thereof, in substantially the form of Exhibit C to the First Amendment.”

2

(ii) Amendment to Definition of “Affiliate Subordination Agreement”. The definition of the term “Affiliate Subordination Agreement” is hereby amended and restated as follows:

“‘Affiliate Subordination Agreement’ means the Amended and Restated Affiliate Subordination Agreement, dated as of the First Amendment Closing Date, made by each of Austin Ventures, Capital Resource Lenders II, L.P., New York Life Capital Partners II, L.P., PPM America Private Equity Fund LP, NML, ABRY Partners IV, L.P. and ABRY Investment Partnership, L.P. in favor of the Administrative Agent, for the benefit of the Credit Parties.”

(iii) Amendment to Definition of “Fixed Charges”. Clause (d) of the definition of “Fixed Charges” is hereby amended by adding the following proviso at the end thereof:

“; provided, however, that the cash payments made to Windward Capital Partners II, L.P. and Windward Capital LP II, LLC as part of the Recapitalization (as defined in the First Amendment) shall not be considered a Fixed Charge”.

(iv) Amendment to Definition of “NOI”. The definition of “NOI” is hereby amended by adding the following clause at the end thereof:

“, plus (e) all transaction expenses paid by Borrower on a one-time basis in connection with the Recapitalization (as defined in the First Amendment).”

(v) Amendment to Definition of “Pledge Agreement”. The definition of the term “Pledge Agreement” is hereby amended and restated as follows:

“‘Pledge Agreement’ means the Amended and Restated Pledge Agreement, dated as of the First Amendment Closing Date, made by the Pledgors in favor of the Administrative Agent, for the benefit of the Credit Parties.”

(vi) Amendment to Definition of “Pledgors”. The definition of the term “Pledgors” is hereby amended and restated as follows:

“‘Pledgors’ means, collectively, Austin Ventures, Capital Resource Lenders II, L.P., New York Life Capital Partners II, L.P., PPM America Private Equity Fund LP, ABRY Partners IV, L.P., ABRY Investment Partnership, L.P., The Northwestern Mutual Life Insurance Company, Hull Family Limited Partnership, Robert Sherman, Michael Gregory, Michael Meyers and Stephen Hedrick.”

3

(vii) Amendment to Definition of “Indebtedness”. Clause (h) of the definition of the term “Indebtedness” is hereby amended by adding the following parenthetical phrase at the end thereof:

“(it being understood that if such Preferred Stock is mandatorily redeemable only upon the occurrence or satisfaction of specified conditions, such Preferred Stock shall not be considered mandatorily redeemable for the purposes of this clause unless such specified conditions have occurred or been satisfied)”

(viii) Amendment to Definition of “Shareholders Agreement”. The definition of the term “Shareholders Agreement” is hereby amended and restated as follows:

“‘Shareholders Agreement’ means that certain Fifth Amended and Restated Shareholders Agreement, dated as of the First Amendment Closing Date, as amended from time to time, among the Borrower and the Shareholders named therein.”

Section 2.3. Amendment to Section 4.6. Section 4.6 of the Existing Credit Agreement is hereby amended by adding the following sentence at the end thereof:

“Set forth on Schedule 4.6 is a brief description of the status, as of the First Amendment Closing Date, and nature of certain proceedings involving the Borrower that have been initiated since the Effective Date by various state attorneys general, it being understood, based on the Borrower’s assessment of such status as of the First Amendment Closing Date, that such proceedings, individually or in the aggregate, could not be reasonably expected to result in a Material Adverse effect.”

Section 2.4. Amendment to Section 4.8. Section 4.8 of the Existing Credit Agreement is hereby amended by deleting the term “Effective Date” appearing therein and inserting in lieu thereof the term “First Amendment Closing Date”.

Section 2.5. Amendment to Section 4.13. Section 4.13 of the Existing Credit Agreement is hereby amended by deleting the term “Effective Date” appearing therein and inserting in lieu thereof the term “First Amendment Closing Date”.

Section 2.6. Amendment to Section 8.3(b)(i). Section 8.3(b)(i) of the Existing Credit Agreement is hereby amended by deleting the term “Effective Date” appearing therein and inserting in lieu thereof the term “First Amendment Closing Date”.

Section 2.7. Amendment to Section 8.7(d). Section 8.7(d) of the Existing Credit Agreement is hereby amended by deleting the term “Effective Date” appearing therein and inserting in lieu thereof the term “First Amendment Closing Date”.

4

Section 2.8. Amendment to Section 8.7(e). Section 8.7(e) of the Existing Credit Agreement is hereby amended by deleting the word “reserved” appearing therein and inserting in lieu thereof the following:

“redemptions of Capital Stock from employees of the Borrower or a Subsidiary of the Borrower pursuant to and in accordance with the terms of a Stock Restriction Agreement, provided that the aggregate amount of such redemptions in any fiscal year of the Borrower shall not exceed Fifty Thousand Dollars ($50,000)”

Section 2.9. Amendment to Section 8.7(g). Section 8.7(g) of the Existing Credit Agreement is hereby amended (a) adding the words “and common stock” immediately after the words “the Preferred Stock” therein, (b) by deleting the amount “Fifty Thousand Dollars ($50,000)” appearing therein and inserting in lieu thereof the amount “One Hundred Fifty Thousand Dollars ($150,000)”, and (c) by adding the following proviso at the end thereof:

“; provided, however, that, in addition to any of the foregoing expenses, the Borrower may pay or reimburse out-of-pocket expenses incurred by securities holders of the Borrower to the extent any such expenses are incurred in connection with the Recapitalization (as defined in the First Amendment), including without limitation expenses incurred by ABRY Partners IV, L.P. and/or affiliates thereof in connection with filings made in accordance with the provisions of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and for reasonable out-of-pocket attorneys fees and expenses incurred by such entity or entities in connection therewith.”

Section 2.10. Amendment to Section 8.12(a). Section 8.12(a) of the Existing Credit Agreement is hereby amended by deleting such Section in its entirety and inserting in lieu thereof the following:

“The Borrower shall not, and shall not permit any of its Subsidiaries to, enter into or agree to any amendment, modification or waiver of any term or condition of its Organizational Documents except for such amendments, modifications or waivers that could not be reasonably expected to adversely affect any Credit Party or the rights of any Credit Party under the Loan Documents; provided however that in no event may the Borrower enter into or agree to any amendment or modification of Sections 1E or 3I of Article 4 of, or the definition of the term “Credit Agreement” in, the Borrower’s Articles of Incorporation as in effect on the First Amendment Closing Date. Without the prior written consent of the Required Lenders, the Borrower will not (a) amend, restate or modify, nor will the Borrower consent to any amendment, restatement, or modification of, Section 1G of the Shareholders’ Agreement, except for such amendments, restatements or modifications that could not be reasonably expected to adversely affect any Credit Party or the rights of any Credit Party under the Loan Documents, or (b) enter into any agreement with any other party to grant such party rights similar to those granted under Section 1G of the Shareholders’ Agreement.”

5

ARTICLE III

REPRESENTATIONS AND WARRANTIES, COVENANTS, CONDITIONS

PRECEDENT, ETC.

Section 3.1. Confirmation of Representations, Warranties and Covenants, Etc. The Borrower, by execution of this Amendment, certifies to the Credit Parties that:

(a) Each of the representations and warranties set forth in the Credit Agreement and the other Loan Documents is true and correct in all material respects on and as of the date hereof, except to the extent such representations and warranties expressly relate to an earlier date, as if fully set forth in this Amendment and that, as of the date hereof, no Default or Event of Default has occurred and is continuing under the Credit Agreement or any other Loan Document;

(b) The Borrower is in compliance in all material respects with all of the terms and provisions set forth in the Credit Agreement on its part to be observed or performed on or prior to the date of this Amendment; and

(c) Since March 31, 2004, there has been no change in the assets or liabilities or in the financial or other condition of the Borrower or any of its Subsidiaries that could have a Material Adverse effect.

Section 3.2. Authorization, Validity and Enforceability. This Amendment has been duly authorized, executed and delivered by the Borrower and constitutes, and the Credit Agreement, and each of the other Loan Documents, as amended by and through the date hereof, constitute, legal, valid and binding obligations of the Borrower, enforceable against the Borrower in accordance with their respective terms, except as the enforcement thereof may be limited by applicable bankruptcy, insolvency or similar laws affecting the enforcement of rights of creditors generally and except to the extent that enforcement of rights and remedies set forth therein may be limited by equitable principles (regardless of whether enforcement is considered in a court of law or a proceeding in equity).

Section 3.3. Conditions Precedent. Prior to or concurrently with the execution of this Amendment, and as a condition to the obligation of the Administrative Agent and the Required Lenders to execute this Amendment:

(a) The Administrative Agent shall have received evidence satisfactory to it that the Recapitalization has been completed in accordance with the terms of a Recapitalization Agreement, a Stock Purchase Agreement, a Fifth Amended and Restated Shareholders Agreement, a Fifth Amended and Restated Registration Rights Agreement and Amended and Restated Articles of Incorporation in the forms of Annex A, Annex B, Annex C, Annex D and Annex E hereto, respectively.

(b) The Administrative Agent shall be satisfied that the Borrower’s Amended and Restated Articles of Incorporation that are being filed with the Secretary of State of Texas on the First Amendment Closing Date in connection with the Recapitalization provide that the Borrower may not redeem any Capital Stock prior to the date that is ninety-one (91) days after the earlier of the last stated maturity of any Loans under the Credit Agreement or the date on which all Obligations under the Loan Documents have been satisfied in full, the Commitments hereunder have been terminated and all obligations in respect of any Letter of Credit have terminated.

(c) The Borrower shall have received the favorable opinion of Vinson & Elkins L.L.P., counsel to the Borrower, addressed to the Credit Parties, regarding such

6

matters as the Administrative Agent shall reasonably request in connection with the transactions contemplated hereby, and the Credit Parties shall be addressees on (or otherwise entitled to rely on) any opinion of Vinson & Elkins L.L.P., or any other counsel of the Borrower, delivered in connection with the Recapitalization.

(d) The Administrative Agent shall have received results of tax, judgment and lien searches with respect to the Borrower as of a date proximate to the date hereof, and the results thereof shall be satisfactory to the Administrative Agent.

(e) The Administrative Agent shall have received a certificate, dated the First Amendment Closing Date, of the Secretary of the Borrower:

(i) attaching a true and complete copy of the resolutions of its Board of Directors and of all other documents evidencing all necessary corporate action (in form and substance satisfactory to the Administrative Agent) taken to authorize the execution, delivery and performance of this Amendment, the principal documents involved in the Recapitalization and each of the other documents and instruments contemplated hereby and thereby;

(ii) attaching a true and complete copy of its Organizational Documents;

(iii) setting forth the incumbency of its officers who are authorized to and who sign this Amendment, including therein a signature specimen of such officers; and

(iv) attaching a certificate of good standing of the Secretary of State of the jurisdiction of its formation.

(f) The Borrower shall have caused to be delivered to the Administrative Agent a copy of the Affiliate Subordination Agreement, in the form of Exhibit A hereto, executed by each of the parties thereto other than the “Secured Party” named therein.

(g) The Borrower shall have caused to be delivered to the Administrative Agent a copy of the Pledge Agreement, in the form of Exhibit B hereto, executed by each of the parties thereto other than the “Secured Party” named therein, and all items of “Pledged Collateral” referred to therein shall have been delivered to the Administrative Agent (or Special Counsel).

(h) The Credit Parties shall have received all fees and other amounts due and payable to the Credit Parties, and their respective Affiliates, under the Loan Documents or any separate letter agreement or other arrangement to the extent that such fees or other amounts are payable on or prior to the First Amendment Closing Date, including, to the extent invoiced, reimbursement or payment of the fees and disbursements of Special Counsel and all other out-of-pocket expenses required to be reimbursed or paid by the Borrower hereunder.

7

(i) The Administrative Agent shall have received all other information and documents which the Administrative Agent or its counsel may reasonably have requested in connection with the transactions contemplated by this Amendment, such information and documents where appropriate to be certified by one of the Borrower’s officers or a Governmental Authority.

ARTICLE IV

MISCELLANEOUS PROVISIONS

Section 4.1. Survival. Except as expressly provided herein, this Amendment does not constitute a waiver of or amendment to any provision of the Existing Credit Agreement or any of the other Loan Documents and does not affect any other term, condition or provision of the Existing Credit Agreement or any of the other Loan Documents, each of which shall continue in full force and effect.

Section 4.2. Governing Law. This Amendment and the rights and obligations of the parties hereunder shall be construed in accordance with and be governed by the laws of the State of New York (without giving effect to the principles thereof relating to conflicts of law).

Section 4.3. Counterparts. This Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, including facsimile counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument.

Section 4.4. Headings. The headings of the several Articles, Sections and subsections of this Amendment are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Amendment.

[Signature pages follow]

8

IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute and deliver this Amendment as of the date first above written.

MONITRONICS INTERNATIONAL, INC.
By:	/s/ James R. Hull
	Name: James R. Hull
	Title: President and CEO

FLEET NATIONAL BANK, as Administrative Agent
By:	/s/ John F. Lynch
	Name: John F. Lynch
	Title: Senior Vice President

[Counterpart signature pages of Lenders follow]

LENDER:
FLEET NATIONAL BANK (Name of Institution)
By:	/s/ John F. Lynch
	Name: John F. Lynch
	Title: Senior Vice President

[Counterpart Signature Page to First Amendment to Credit Agreement]

LENDER:
BANK OF AMERICA, N.A. (Name of Institution)
By:	/s/ John F. Lynch
	Name: John F. Lynch
	Title: Senior Vice President

[Counterpart Signature Page to First Amendment to Credit Agreement]

LENDER:
U.S. BANK NATIONAL ASSOCIATION (Name of Institution)
By:	/s/ Gail F. Scannell
	Name: Gail F. Scannell
	Title: Vice President

[Counterpart Signature Page to First Amendment to Credit Agreement]

LENDER:
LASALLE BANK NATIONAL ASSOCIATION (Name of Institution)
By:	/s/ Jessica R. Richardson
	Name: Jessica R. Richardson
	Title: First Vice President

[Counterpart Signature Page to First Amendment to Credit Agreement]

LENDER:
NATIONAL CITY BANK OF PENNSYLVANIA (Name of Institution)
By:	/s/ Richard D. Barnes
	Name: Richard D. Barnes
	Title: Vice President

[Counterpart Signature Page to First Amendment to Credit Agreement]

LENDER:
WELLS FARGO BANK, N.A. (Name of Institution)
By:	/s/ Michael Real
	Name: Michael Real
	Title: Vice President

[Counterpart Signature Page to First Amendment to Credit Agreement]

LENDER:
BANK ONE, N.A., as a Lender (Name of Institution)
By:	/s/ Sharon Ellis
	Name: Sharon Ellis
	Title: Vice President

[Counterpart Signature Page to First Amendment to Credit Agreement]

LENDER:
UNION BANK OF CALIFORNIA, N.A. (Name of Institution)
By:	/s/ Christine M. Davis
	Name: Christine M. Davis
	Title: Vice President

[Counterpart Signature Page to First Amendment to Credit Agreement]

LENDER:
TEXAS CAPITAL BANK, N.A. (Name of Institution)
By:	/s/ Paul Howell
	Name: Paul Howell
	Title: Vice President

[Counterpart Signature Page to First Amendment to Credit Agreement]

LENDER:
JP MORGAN CHASE BANK (Name of Institution)
By:	/s/ Brian McDougal
	Name: Brian McDougal
	Title: Vice President

[Counterpart Signature Page to First Amendment to Credit Agreement]

LENDER:
SAWGRASS TRADING LLC (Name of Institution)
By:	/s/ Diana M. Himes
	Name: Diana M. Himes
	Title: Assistant Vice President

[Counterpart Signature Page to First Amendment to Credit Agreement]

LENDER:
SEMINOLE FUNDING LLC (Name of Institution)
By:	/s/ Diana M. Himes
	Name: Diana M. Himes
	Title: Assistant Vice President

[Counterpart Signature Page to First Amendment to Credit Agreement]

LENDER:
SUNAMERICA LIFE INSURANCE COMPANY By: AIG Global Investment Corp. as Investment Advisor (Name of Institution)
By:	/s/ Not legible
	Name:
	Title:

[Counterpart Signature Page to First Amendment to Credit Agreement]

LENDER:
GALAXY CLO 1999-1 LTD. By: AIG Global Investment Corp. as Collateral Manager (Name of Institution)
By:	/s/ Not legible
	Name:
	Title:

[Counterpart Signature Page to First Amendment to Credit Agreement]

LENDER:
GALAXY CLO 2003-1, LTD. By: AIG Global Investment Corp. as Investment Advisor (Name of Institution)
By:	/s/ Not legible
	Name:
	Title:

[Counterpart Signature Page to First Amendment to Credit Agreement]

LENDER:
HARCH CLO I, LTD. (Name of Institution)
By:	/s/ Michael E. Lewitt
	Name: Michael E. Lewitt
	Title: Authorized Signatory

[Counterpart Signature Page to First Amendment to Credit Agreement]

LENDER:
SECURITY INCOME FUND – INCOME OPPORTUNITY SERIES By: Four Corners Capital Management LLC as Collateral Manager (Name of Institution)
By:	/s/ Dean Valentine
	Name: Dean Valentine
	Title: Vice President

[Counterpart Signature Page to First Amendment to Credit Agreement]

LENDER:
FIRST TRUST/FOUR CORNERS SENIOR FLOATING RATE INCOME FUND By: Four Corners Capital Management LLC as Collateral Manager (Name of Institution)
By:	/s/ Dean Valentine
	Name: Dean Valentine
	Title: Vice President

[Counterpart Signature Page to First Amendment to Credit Agreement]

LENDER:
ARCHIMEDES FUNDING III, LTD. By: ING Capital Advisors LLC, as Collateral Manager (Name of Institution)
By:	/s/ Gordon R. Cook
	Name: Gordon R. Cook
	Title: Managing Director
ARCHIMEDES FUNDING IV (CAYMAN) LTD. By: ING Capital Advisors LLC, as Collateral Manager (Name of Institution)
By:	/s/ Gordon R. Cook
	Name: Gordon R. Cook
	Title: Managing Director
ENDURANCE CLO I, LTD C/o ING Capital Advisors LLC, As Portfolio Manager (Name of Institution)
By:	/s/ Gordon R. Cook
	Name: Gordon R. Cook
	Title: Managing Director
NEMEAN CLO, LTD. By: ING Capital Advisors LLC, as Investment Manager (Name of Institution)
By:	/s/ Gordon R. Cook
	Name: Gordon R. Cook
	Title: Managing Director
SEQUILS-ING I (HBDGM), LTD. By: ING Capital Advisors LLC, as Collateral Manager (Name of Institution)
By:	/s/ Gordon R. Cook
	Name: Gordon R. Cook
	Title: Managing Director

[Counterpart Signature Page to First Amendment to Credit Agreement]

ING-ORYX CLO, LTD. By: ING Capital Advisors LLC, as Collateral Manager (Name of Institution)
By:	/s/ Gordon R. Cook
	Name: Gordon R. Cook
	Title: Managing Director
BALANCED HIGH-YIELD FUND II, LTD. By: ING Capital Advisors LLC, as Asset Manager (Name of Institution)
By:	/s/ Gordon R. Cook
	Name: Gordon R. Cook
	Title: Managing Director

[Counterpart Signature Page to First Amendment to Credit Agreement]

LENDER:
KZH RIVERSIDE LLC (Name of Institution)
By:	/s/ Dorian Herrera
	Name: Dorian Herrera
	Title: Authorized Agent

[Counterpart Signature Page to First Amendment to Credit Agreement]

LENDER:
KZH SOLEIL, LLC (Name of Institution)
By:	/s/ Dorian Herrera
	Name: Dorian Herrera
	Title: Authorized Agent

[Counterpart Signature Page to First Amendment to Credit Agreement]

LENDER:
KZH SOLEIL-2 LLC (Name of Institution)
By:	/s/ Dorian Herrera
	Name: Dorian Herrera
	Title: Authorized Agent

[Counterpart Signature Page to First Amendment to Credit Agreement]

LENDER:
MERRILL LYNCH CAPITAL, a division of Merrill Lynch Business Financial Services, Inc. (Name of Institution)
By:	/s/ K. Craig Gallehugh
	Name: K. Craig Gallehugh
	Title: Director

[Counterpart Signature Page to First Amendment to Credit Agreement]

LENDER:
APEX (TRIMARAN) CDO I, LTD. By: Trimaran Advisors, L.L.C. (Name of Institution)
By:	/s/ David M. Millison
	Name: David M. Millison
	Title: Managing Director

[Counterpart Signature Page to First Amendment to Credit Agreement]

EX-10.6

Exhibit 10.6

AMENDED AND RESTATED AFFILIATE SUBORDINATION AGREEMENT

AMENDED AND RESTATED AFFILIATE SUBORDINATION AGREEMENT, dated as of July 14, 2004 (this “Agreement”), among (i) Austin Ventures III-A, L.P., a Delaware limited partnership, Austin Ventures III-B, L.P., a Delaware limited partnership, Austin Ventures V, L.P., a Delaware limited partnership, Austin Ventures V Affiliates Fund, L.P., a Delaware limited partnership (collectively, and jointly, severally and jointly and severally, “Austin Ventures”), (ii) Capital Resource Lenders II, L.P., a Delaware limited partnership (“Capital Resources”), (iii) ABRY Partners IV, L.P., a Delaware limited partnership, ABRY Investment Partnership, L.P., a Delaware limited partnership (collectively, and jointly, severally and jointly and severally, “ABRY”), (iv) New York Life Capital Partners II, L.P., a Delaware limited partnership (“NYLCAP”), (v) PPM America Private Equity Fund LP, a Delaware limited partnership (“PPM”), (vi) The Northwestern Mutual Life Insurance Company (“NML”), (vii) Hull Family Limited Partnership, a Texas limited partnership (“Hull Partnership”), (viii) James Hull, individually, (ix) Robert Sherman, individually, (x) Michael Gregory, individually, (xi) Michael Meyers, individually and (xii) Stephen Hedrick, individually (Austin Ventures, Capital Resources, ABRY, NYLCAP, PPM, NML, Hull Partnership, James Hull, Robert Sherman, Michael Gregory, Michael Meyers, Stephen Hedrick, collectively the “Subordinated Creditors”, and each a “Subordinated Creditor”), and Fleet National Bank, as Secured Party for the Lenders from time to time party to the credit agreement referred to below (in such capacity, the “Secured Party”). The Secured Party and the other Credit Parties referred to in the Credit Agreement referred to below are sometimes referred to herein collectively as the “Senior Creditor”.

W I T N E S S E T H :

WHEREAS, on August 25, 2003 Monitronics International, Inc., a Texas corporation (the “Borrower”), the Secured Party, Bank of America, N.A., as syndication agent, and the Lenders party thereto entered into a Credit Agreement (as amended, modified, supplemented and/or extended from time to time, the “Credit Agreement”, capitalized terms used herein and not otherwise defined shall have the same meanings herein as in the Credit Agreement), pursuant to which the Lenders agreed, subject to the terms and conditions set forth therein, to make revolving credit loans and term loans to the Borrower (collectively, the “Loans”), such Loans to be evidenced by the Borrower’s Revolving Credit and Term Notes, payable to the order of the respective Lenders (collectively, as amended, modified, supplemented and/or extended from time to time the “Notes”);

WHEREAS, on the date hereof, the Borrower, the Subordinated Creditors and certain other parties are engaging in a series of transactions (collectively, the “Recapitalization”) pursuant to which, among other things, (i) the Borrower will amend its Organizational Documents to cancel its various existing series of preferred stock and create a new, single series of preferred stock, (ii) the Borrower’s principal shareholders will exchange their existing shares of Capital Stock of the Borrower for shares of the new series of preferred stock or for common stock of the Borrower and in connection therewith Borrower will redeem certain existing shares of Preferred Stock for an aggregate redemption price of approximately $5,300,000 and (iii) two of the Borrower’s shareholders will sell shares of the Borrower’s common stock received in the share exchange described above to NYLCAP and PPM;

WHEREAS, on the date hereof, the Borrower, the Administrative Agent and the Required Lenders are entering into a First Amendment to Credit Agreement (the “First Amendment”) to permit the Borrower to effect the Recapitalization, among other things;

WHEREAS, it is a condition to the execution and delivery of the First Amendment by the Administrative Agent and the Required Lenders that the Subordinated Creditors and the Borrower enter into this Agreement;

WHEREAS, the Subordinated Creditors collectively own substantially all of the Capital Stock of the Borrower and will thereby benefit from the making of the Loans under the Credit Agreement; and

WHEREAS, the obligation of the Lenders to make Loans under the Credit Agreement on and after the date hereof is subject to the conditions, among others, that the Subordinated Creditors shall have executed and delivered this Agreement and agreed to the subordination provisions contained herein, and the Subordinated Creditors hereby enter into this Agreement to induce the Lenders to enter into the First Amendment and make the Loans from time to time under the Credit Agreement;

NOW, THEREFORE, in consideration of the willingness of the Administrative Agent and the Required Lenders to enter into the First Amendment and the Lenders to agree, subject to the terms and conditions set forth in the Credit Agreement, to make the Loans to the Borrower from time to time pursuant thereto, and for other good and valuable consideration, receipt and sufficiency of which is hereby acknowledged by the Subordinated Creditors, it is hereby agreed as follows:

1. Representations by Subordinated Creditors.

(a) Each Subordinated Creditor represents and warrants for itself to the Senior Creditor that (i) all Indebtedness of the Borrower to such Subordinated Creditor, if any, is set forth in Schedule 4.4 to the Credit Agreement, (ii) such Indebtedness, if any, is not subject to any currently effective assignment to or subordination in favor of any other Person and that such Subordinated Creditor holds no security therefor, and (iii) the rights associated with the Capital Stock established under the Borrower’s Articles of Incorporation, as amended through the date hereof, or warrants issued by the Borrower to the Subordinated Creditors are the only rights or options held by such Subordinated Creditor to acquire additional shares of any class or series of Capital Stock of the Borrower.

(b) Each Subordinated Creditor that is a business entity is duly organized, validly existing and in good standing under the laws of the jurisdiction of its formation and has all necessary power and authority to enter into this Agreement, to carry out its respective obligations hereunder and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by such Subordinated Creditor, the performance by such Subordinated Creditor of its respective obligations hereunder, and the consummation by such Subordinated Creditor of the transactions contemplated hereby have been duly authorized by all requisite limited partnership, corporate, limited liability company or other analogous powers on the part of such Subordinated Creditor that is a business entity. This Agreement has been duly executed and delivered by such Subordinated Creditor, and (assuming due authorization, execution and delivery by the Secured

2

Party) this Agreement constitutes the legal, valid and binding obligation of such Subordinated Creditor, enforceable against such Subordinated Creditor in accordance with its terms, except as such enforcement may be limited by applicable Debtor Relief Laws generally and by general equity principles (whether enforcement is sought at law or in equity).

(c) Each Subordinated Creditor agrees and acknowledges that this Agreement is a “subordination agreement” within the meaning of Section 510(a) of the United States Bankruptcy Code, 11 U.S.C §510(a).

2. Subordination; Limitation on Sale Right During an Event of Default.

(a) Subordination. Each Subordinated Creditor hereby subordinates (i) all present and future Indebtedness of the Borrower to such Subordinated Creditor and (ii) any and all obligations or liabilities of the Borrower and any rights of such Subordinated Creditor now existing or hereafter arising, absolute or contingent, arising by contract, at law or otherwise, with respect to dividends payable on the Capital Stock, the purchase, redemption or other acquisition by the Borrower of such Capital Stock and any other amount payable to the holders of such Capital Stock as such (collectively the “Subordinated Indebtedness”), to any and all Indebtedness now or hereafter owing by the Borrower (including any interest accruing after the commencement of any proceeding by or against the Borrower under the federal bankruptcy laws, as now or hereafter constituted, or any other applicable federal or state bankruptcy, insolvency or other similar law, and any other interest that would have accrued but for the commencement of such proceeding, whether or not any such interest is allowed as a claim enforceable against the Borrower in such proceeding) to the Senior Creditor (the “Senior Indebtedness”) to the extent and in the manner hereinafter set forth, and such Subordinated Creditor agrees not to demand, accept or receive any payment in respect of the Subordinated Indebtedness, including, without limitation, any payment received through the exercise of any right of setoff, counterclaim or cross claim, or any collateral therefor, or any right to cause the Borrower to redeem, purchase, assume or otherwise retire the Subordinated Indebtedness, in contravention hereof:

(i) In the event of any insolvency or bankruptcy proceedings, or any receivership, liquidation, reorganization or other similar proceedings in connection therewith, relative to the Borrower or to its creditors, as such, or to its properties, or in the event of any proceedings for voluntary liquidation, dissolution or other winding up of the Borrower, whether or not involving insolvency or bankruptcy, then the Senior Creditor shall be entitled to receive payment in full in cash of all of the Senior Indebtedness before such Subordinated Creditor is entitled to receive any payment in respect of the Subordinated Indebtedness (except securities which are subordinate and junior in right of payment to all Senior Indebtedness then outstanding), and to that end the holder of the Senior Indebtedness shall be entitled to receive for application in payment thereof any payment or distribution of any kind or character, whether in cash or property or securities, which may be payable or deliverable in any such proceedings in respect of the Subordinated Indebtedness; and

(ii) No amount shall be paid (except in securities which are subordinate and junior in right of payment to all Senior Indebtedness then outstanding, it being

3

understood that all such securities shall constitute “Subordinated Indebtedness” hereunder), whether in cash, property, or securities or otherwise, and the Subordinated Creditors will not exercise any rights with respect to the Capital Stock, in respect of the Subordinated Indebtedness, except as expressly permitted under the Credit Agreement or the Pledge Agreement.

(b) Limitation on Sale Rights During an Event of Default. Notwithstanding any provision to the contrary in any agreement between the Borrower and the Subordinated Creditors, in the event of the enforcement by the Senior Creditor of its rights during the existence of an Event of Default that shall be continuing after applicable grace and cure periods, the Subordinated Creditors may not exercise any rights under any agreement between the Borrower and the Subordinated Creditors involving rights to block a Change in Control of the Borrower or a public offering of the Borrower’s common stock.

3. Limitations on Remedies. So long as any Senior Indebtedness is outstanding, no Subordinated Creditor shall (i) as a holder of Subordinated Indebtedness commence or join (unless the Senior Creditor shall also join) in any involuntary proceeding against the Borrower or any of its Subsidiaries under any bankruptcy, reorganization, readjustment of debt, arrangement of debt, receivership, liquidation or insolvency law or statute of any federal or state government, or (ii) commence any action or proceeding against the Borrower or any of its Subsidiaries to enforce payment of all or any part of the Subordinated Indebtedness. Notwithstanding the foregoing, nothing contained herein shall prohibit or otherwise restrict the Borrower or any of its Subsidiaries from filing any voluntary proceeding under any bankruptcy, reorganization, readjustment of debt, arrangement of debt, receivership, liquidation or insolvency law or statute of any federal or state government.

4. Delivery of Payments. If, prior to the satisfaction of the Senior Indebtedness in full in cash and the termination of the obligation of the Senior Creditor to make Loans to the Borrower under the Credit Agreement and the documents related thereto, any of the Subordinated Creditors receives any payment with respect to any of the Subordinated Indebtedness (except payment, if any, expressly permitted under the Credit Agreement), or any security for or on account of the Subordinated Indebtedness, such Subordinated Creditor shall forthwith deliver such payment or security to the Secured Party for the benefit of the Senior Creditor, in precisely the form received, except for such Subordinated Creditor’s endorsement when necessary, to be applied in payment of (or if no Default or Event of Default shall then be continuing, to be held by the Senior Creditor as security for) the Senior Indebtedness and until so delivered, such payment or security shall be held in trust by such Subordinated Creditor as the property of the Senior Creditor. In the event of the failure of such Subordinated Creditor to endorse any instrument for the payment of money so received by such Subordinated Creditor, the Secured Party for the benefit of the Senior Creditor is irrevocably appointed attorney for such Subordinated Creditor with full power to make such endorsement and with full power of substitution.

5. Further Assurances. In order to carry out the terms and intent of this Agreement more effectively, the Subordinated Creditors will do all acts and execute all further documents and instruments necessary or convenient to preserve for the Senior Creditor the benefits of this Agreement.

4

6. Waivers, etc. No action which the Senior Creditor, or the Borrower, may take or refrain from taking with respect to any Senior Indebtedness, or any note or notes representing the same, or any collateral therefor, including any waiver or release thereof or of any agreement or agreements (including guaranties) in connection therewith, shall affect this Agreement or the obligations of the Subordinated Creditors hereunder. No waiver shall be deemed to be made by the Senior Creditor of any of its rights hereunder unless the same shall be in writing and then only with respect to the specific instance involved, and shall in no way impair or offset the rights of the Senior Creditor or the obligations of the Subordinated Creditors in any other respect or at any other time.

7. Transfer. The Subordinated Creditors may transfer, sell or otherwise dispose of all or a portion of the Subordinated Indebtedness, but only on the condition that a transferee of the Subordinated Indebtedness first becomes a party hereto; provided, however, that in the event that there shall exist an Event of Default under the Credit Agreement on account of the Borrower’s failure to pay principal or interest on any Note when the same is due and payable (whether at maturity, upon acceleration or otherwise) or on account of the Borrower’s failure to perform or comply with any covenant or term contained in Sections 8.16 or 8.17 of the Credit Agreement, and such Event of Default shall be continuing after applicable grace and cure periods, the Subordinated Creditors may not transfer any of the Subordinated Indebtedness without the prior written consent of the Lenders, which consent shall not be unreasonably withheld or delayed.

8. Miscellaneous. This Agreement shall be binding upon the Subordinated Creditors and the Borrower and their respective heirs, legal representatives, successors and assigns and shall inure to the benefit of the Senior Creditor and its legal representatives, successors and assigns (including without limitation any transferee of any Senior Indebtedness). This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of the counterparts shall together constitute one and the same instrument.

9. Governing Law; Jurisdiction; Waiver of Jury Trial. This Agreement, including the validity hereof and the rights and obligations of the parties hereunder, shall be governed by, and construed in accordance with, the internal laws (as opposed to the conflicts of law provisions, but including sections 5-1401 and 5-1402 of the general obligations law of the State of New York) and decisions of the State of New York. Each party hereto hereby irrevocably submits to the nonexclusive jurisdiction of any New York or Federal court sitting in the City of New York, New York over any suit, action or proceeding arising out of or relating to this Agreement and waives, to the fullest extent permitted or not prohibited by law, any objection which it may now or hereafter have to the laying of the venue of any such suit, action or proceeding brought in such a court and any claim that any such suit, action or proceeding brought in such a court has been brought in an inconvenient forum. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING

5

WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.

10. Amendments to Senior Indebtedness. Notwithstanding anything contained in this Agreement to the contrary, the Senior Creditor shall not, without the prior written consent of the Subordinated Creditors, (a) increase the stated principal amount of the Senior Indebtedness to an amount in excess of the Aggregate Commitment from time to time in effect under the Credit Agreement (up to $470,000,000) plus $47,000,000, or (b) extend the Revolving Loan Maturity Date or the Term Loan Maturity Date or any Incremental Term Loan Maturity Date more than sixty (60) days.

11. Amendment and Restatement. This Agreement amends, restates and supersedes the Affiliate Subordination Agreement dated as of August 25, 2003 among the Borrower, the Subordinated Creditors named therein and the Senior Creditor.

[Signature page follows]

6

IN WITNESS WHEREOF, the parties have executed this Agreement as a sealed instrument as of the date first above written.

AUSTIN VENTURES III-A, L.P.
By:	AV Partners III, L.P.,
	General Partner
By:	/s/ Blaine F. Wesner
	Blaine F. Wesner
	Authorized Signatory
AUSTIN VENTURES III-B, L.P.
By:	AV Partners III, L.P.,
	General Partner
By:	/s/ Blaine F. Wesner
	Blaine F. Wesner
	Authorized Signatory
AUSTIN VENTURES V, L.P.
By:	AV Partners V, L.P.
	Its General Partner
By:	/s/ Blaine F. Wesner
	Blaine F. Wesner,
	General Partner
AUSTIN VENTURES V AFFILIATES FUND, L.P.
By:	AV Partners V, L.P.
	Its General Partner
By:	/s/ Blaine F. Wesner
	Blaine F. Wesner
	General Partner

CAPITAL RESOURCE LENDERS II, L.P.
By:	Capital Resource Partners II, L.P.,
	Its General Partner
By:	/s/ Robert Ammerman
	Its General Partner
By:
	Name:
	Title:
NEW YORK LIFE CAPITAL PARTNERS II, L.P.
By:	NYLCAP Manager LLC,
	Its General Partner

By:	/s/ John E. Schumacher
	Name: John E. Schumacher
	Title:

PPM AMERICA PRIVATE EQUITY FUND LP
By:	PPM America Capital Partners, LLC,
	Its General Partner
By:	/s/ Bruce Saewitz
	Name:  Bruce Saewitz
	Title:  Senior Partner
By:	/s/ Austin Krumpfes
	Name:  Austin Krumpfes
	Title:  Associate

ABRY PARTNERS IV, L.P.
By:	ABRY Capital Partners, L.P.,
	its general partner
By:	/s/ Jay M. Grossman
	Name: Jay M. Grossman
	Title:
ABRY INVESTMENT PARTNERSHIP, L.P.
By:	ABRY Investment GP, LLC,
	its general partner
By:	/s/ Jay M. Grossman
	Name: Jay M. Grossman
	Title:
HULL FAMILY LIMITED PARTNERSHIP
By:	James R. Hull Management Trust,
	Its General Partner
By:	/s/ James R. Hull
	James R. Hull, Trustee

/s/ James R. Hull

James R. Hull, individually

c/o Monitronics International, Inc.

12801 Stemmons Freeway, Suite 821

Dallas, Texas 75234

/s/ Robert Sherman

Robert Sherman, individually

c/o Monitronics International, Inc.

12801 Stemmons Freeway, Suite 821

Dallas, Texas 75234

/s/ Michael Meyers

Michael Meyers, individually

c/o Monitronics International, Inc.

12801 Stemmons Freeway, Suite 821

Dallas, Texas 75234

/s/ Michael Gregory

Michael Gregory, individually

c/o Monitronics International, Inc.

12801 Stemmons Freeway, Suite 821

Dallas, Texas 75234

/s/ Stephen Hedrick

Stephen Hedrick, individually

c/o Monitronics International, Inc.

12801 Stemmons Freeway, Suite 821

Dallas, Texas 75234

THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
By:	/s/ David A. Barras
	Name: David A. Barras
	Title: Its Authorized Representative

FLEET NATIONAL BANK, as Secured Party
By:	/s/ John F. Lynch
	Name: John F. Lynch
	Title: Senior Vice President

ACKNOWLEDGMENT:

The Borrower hereby acknowledges notice of the within and foregoing Amended and Restated Affiliate Subordination Agreement and agrees to be bound by all of the terms, provisions and conditions hereof.

MONITRONICS INTERNATIONAL, INC.
By:	/s/ James R. Hull
	Name: James R. Hull
	Title: President and CEO

EX-10.10

Exhibit 10.10

AMENDED AND RESTATED PLEDGE AGREEMENT

AMENDED AND RESTATED PLEDGE AGREEMENT, dated as of July 14, 2004 (this “Agreement”), among (i) Austin Ventures III-A, L.P., a Delaware limited partnership, Austin Ventures III-B, L.P., a Delaware limited partnership, Austin Ventures V, L.P., a Delaware limited partnership, Austin Ventures V Affiliates Fund, L.P., a Delaware limited partnership (collectively, and jointly, severally and jointly and severally, “Austin Ventures”), (ii) Capital Resource Lenders II, L.P., a Delaware limited partnership (“Capital Resources”), (iii) ABRY Partners IV, L.P., a Delaware limited partnership, ABRY Investment Partnership, L.P., a Delaware limited partnership (collectively, and jointly, severally and jointly and severally, “ABRY”), (iv) New York Life Capital Partners II, L.P., a Delaware limited partnership (“NYLCAP”), (v) PPM America Private Equity Fund LP, a Delaware limited partnership (“PPM”), (vi) Hull Family Limited Partnership, a Texas limited partnership (“Hull Partnership”), (vii) James Hull, individually, (viii) Robert Sherman, individually, (ix) Michael Gregory, individually, (x) Michael Meyers, individually and (xi) Stephen Hedrick, individually (Austin Ventures, Capital Resources, ABRY, NYLCAP, PPM, Hull Partnership, James Hull, Robert Sherman, Michael Gregory, Michael Meyers, Stephen Hedrick, collectively the “Pledgors”, and each a “Pledgor”), and Fleet National Bank, as Administrative Agent for the Lenders from time to time party to the credit agreement referred to below (in such capacity, the “Secured Party”).

W I T N E S S E T H:

WHEREAS, on August 25, 2003, Monitronics International, Inc., a Texas corporation (the “Borrower”), the Secured Party, Bank of America, N.A., as syndication agent, and the Lenders referred to therein entered into a Credit Agreement dated (as amended, modified, supplemented and/or extended from time to time, the “Credit Agreement”, capitalized terms used herein and not otherwise defined shall have the same meanings herein as in the Credit Agreement), pursuant to which the Lenders have agreed, subject to the terms and conditions set forth therein, to make revolving credit loans, swing line loans and term loans to the Borrower (collectively, the “Loans”), such Loans to be evidenced by the Borrower’s Revolving Credit and Term Notes, payable to the order of the respective Lenders (collectively, as amended, modified, supplemented and/or extended from time to time the “Notes”);

WHEREAS, on the date hereof, the Borrower, the Pledgors and certain other parties are engaging in a series of transactions (collectively, the “Recapitalization”) pursuant to which, among other things, (i) the Borrower will amend its Organizational Documents to cancel its various existing series of preferred stock and create a new, single series of preferred stock, (ii) the Borrower’s principal shareholders will exchange their existing shares of Capital Stock of the Borrower for shares of the new series of preferred stock or for common stock of the Borrower and in connection therewith Borrower will redeem certain existing shares of Preferred Stock for an aggregate redemption price of approximately $5,300,000 and (iii) two of the Borrower’s shareholders will sell shares of the Borrower’s common stock received in the share exchange described above to NYLCAP and PPM;

WHEREAS, on the date hereof, the Borrower, the Administrative Agent and the Required Lenders are entering into a First Amendment to Credit Agreement (the “First Amendment”) to permit the Borrower to effect the Recapitalization, among other things;

WHEREAS, it is a condition to the execution and delivery of the First Amendment by the Administrative Agent and the Required Lenders that the Pledgors and the Borrower enter into this Agreement;

WHEREAS, the Pledgors collectively own substantially all of the Capital Stock of the Borrower and will thereby benefit from the making of the Loans under the Credit Agreement; and

WHEREAS, the obligation of the Lenders to make Loans under the Credit Agreement from time to time is subject to the condition, among others, that the Pledgors shall have executed and delivered this Agreement and granted the security interests hereinafter described, and the Pledgors hereby enter into this Agreement and pledge the Pledged Collateral (as herein defined) to the Secured Party to induce the Lenders to enter into the First Amendment and make Loans from time to time under the Credit Agreement;

NOW, THEREFORE, in consideration of the willingness of the Administrative Agent and the Required Lenders to enter into the First Amendment and the Lenders to agree, subject to the terms and conditions set forth therein, to make the Loans to the Borrower from time to time pursuant to the Credit Agreement, and for other good and valuable consideration, receipt and sufficiency of which is hereby acknowledged by the Pledgors, it is hereby agreed as follows:

1. Security Interest. The Pledgors hereby deposit with and pledge to the Secured Party, for the benefit of the Credit Parties, the shares of capital stock of the Borrower (the “Pledged Stock”), the warrants together with the shares of common stock issuable upon exercise thereof (the “Pledged Warrants”) and the promissory notes, if any, of the Borrower payable to the Pledgors (the “Pledged Notes”) listed in Schedule I attached hereto (the Pledged Stock, the Pledged Warrants, the Pledged Notes, and any additional securities or collateral now or hereafter pledged hereunder are sometimes herein referred to collectively as the “Pledged Collateral”), and the Pledgors hereby grant to the Secured Party, for the benefit of the Credit Parties, a security interest in and lien on all of the Pledged Collateral as security for the due and punctual payment and performance of the Secured Obligations described in Section 2 hereof.

2. Secured Obligations. The security interest hereby granted shall secure the due and punctual payment and performance of the Obligations under the Credit Agreement and the other Loan Documents, including without limitation, the following (herein called the “Secured Obligations”):

(a) Principal of and premium, if any, and interest on the Notes (including, without limitation, the payment of interest and other amounts that would accrue and become due but for the filing of a petition in bankruptcy or the operation of the automatic stay under Section 362(a) of Title 11 of the United States Code, as amended); and

(b) Any and all other obligations of the Borrower to the Secured Party and/or the Credit Parties under the Credit Agreement or under any other Loan Document.

2

Notwithstanding the foregoing, the Secured Party and/or the Credit Parties shall not, without the prior written consent of the Pledgors, (a) increase the stated principal amount of the Secured Obligations to an amount in excess of the Aggregate Commitments from time to time in effect under the Credit Agreement (up to $470,000,000) plus $47,000,000, or (b) extend the Revolving Loan Maturity Date, the Term Loan Maturity Date or any Incremental Term Loan Maturity Date more than sixty (60) days.

3. Special Warranties and Covenants by each Pledgor. Each Pledgor hereby warrants and covenants for itself to the Secured Party and each Lender that:

(a) Such Pledgor’s Pledged Collateral is duly and validly pledged with the Secured Party, for the benefit of the Credit Parties, in accordance with law and such Pledgor warrants and will defend the Secured Party’s right, title and security interest in and to such Pledged Collateral against the claims and demands of all persons whomsoever.

(b) Such Pledgor has good title to such Pledgor’s Pledged Collateral, free and clear of all claims, mortgages, pledges, and Liens except as may be expressly set forth and permitted under the Credit Agreement.

(c) All of such Pledgor’s Pledged Stock has been duly and validly issued and is fully paid and nonassessable.

(d) As of the First Amendment Closing Date, the Pledged Stock and Pledged Warrants include all of the issued and outstanding capital stock and warrants of the Borrower issued to such Pledgor. The Pledged Notes include all promissory notes, instruments or other evidences of Indebtedness of any kind or nature payable to such Pledgor by the Borrower.

(e) Such Pledgor may (i) transfer or otherwise dispose of all or a portion of such Pledgor’s Pledged Collateral in connection with any redemption of Capital Stock expressly permitted by the Credit Agreement or (ii) otherwise transfer, sell or dispose of all or a portion of such Pledgor’s Pledged Collateral on the condition that the transferee of such Pledged Collateral first becomes a party hereto; provided, however, that in the event that there shall exist an Event of Default under the Credit Agreement on account of the Borrower’s failure to pay principal or interest on any Note when the same is due and payable (whether at maturity, upon acceleration or otherwise) or on account of the Borrower’s failure to perform or comply with any covenant or term contained in Sections 8.16 or 8.17 of the Credit Agreement, and such Event of Default shall be continuing after applicable grace and cure periods, such Pledgor may not transfer any of such Pledged Collateral without the prior written consent of the Lenders, which consent shall not be unreasonably withheld or delayed.

(f) If any additional Capital Stock of the Borrower or if any promissory notes or other evidence of Indebtedness of the Borrower or other Capital Stock of the Borrower is acquired by such Pledgor after the date hereof whether pursuant to option agreements or otherwise, the same shall constitute Pledged Collateral and shall be deposited and pledged with the Secured Party, for the benefit of the Credit Parties, as provided in Section 1 hereof simultaneously with such acquisition. Such Pledgor will promptly notify the Secured Party of the date and amount of any loans made from time to time by such Pledgor to the Borrower.

3

(g) Such Pledgor will not create, incur or permit to exist any Lien or any security interest whatsoever with respect to any of such Pledgor’s Pledged Collateral or the proceeds thereof, other than Liens on and security interests in such Pledged Collateral created hereby or which are otherwise expressly permitted under the Credit Agreement.

(h) Such Pledgor will not consent to or approve the issuance of any additional shares of capital stock of any class of the Borrower, except pursuant to warrants, options or other instruments exercisable or convertible into capital stock of the Borrower which are outstanding as of the First Amendment Closing Date or subsequent options granted to employees or granted under the Option Plans, or except as may be expressly permitted by and in accordance with the terms of the Credit Agreement, provided that any such additional shares of capital stock issued to such Pledgor shall be deposited and pledged with the Secured Party simultaneously with such issuance as provided in Section 1 hereof.

(i) Such Pledgor has all necessary power and authority to enter into this Agreement, to carry out its obligations hereunder and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by such Pledgor, the performance by such Pledgor of its obligations hereunder, and the consummation by such Pledgor of the transactions contemplated hereby have been duly authorized by all requisite action on the part of such Pledgor. This Pledge Agreement has been duly executed and delivered by such Pledgor, and (assuming due authorization, execution and delivery by the Secured Party) this Agreement constitutes the legal, valid and binding obligation of such Pledgor, enforceable against such Pledgor in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization or similar laws affecting the enforcement of creditors rights generally and by general equity principles (whether enforcement is sought at law or in equity).

4. Distributions. In case, upon the dissolution, winding up, liquidation or reorganization of the Borrower whether in bankruptcy, insolvency or receivership proceedings or upon an assignment for the benefit of creditors or any other marshaling of the assets and liabilities of the Borrower or otherwise, any sum shall be paid or any property shall be distributed upon or with respect to any of the Pledged Collateral, such sum shall be paid over to the Secured Party to be held as collateral security for the Secured Obligations. In case any stock dividend shall be declared on any of the Pledged Collateral, or any share of stock or fraction thereof shall be issued pursuant to any stock split involving any of the Pledged Collateral, or any distribution of capital (including cash dividends, except those expressly allowed under the Credit Agreement) shall be made on any of the Pledged Collateral, or any property shall be distributed upon or with respect to the Pledged Collateral pursuant to recapitalization or reclassification of the capital of the Borrower, the shares or other property so distributed shall be delivered to the Secured Party to be held as collateral security for the Secured Obligations.

5. Events of Default. There shall exist a default under this Agreement upon the happening of any of the following events or conditions (herein called “Events of Default”):

(a) Any Event of Default (as defined or provided in the Credit Agreement) shall occur and such Event of Default shall continue beyond the expiration of the applicable period of grace, if any; or

4

(b) There shall be a material breach of any term or provision contained herein, or any representation and/or warranty made in this Agreement or in any document executed or delivered from time to time in connection herewith is untrue or misleading in any material respect.

6. Rights and Remedies of Secured Party. Upon the occurrence and continuance of any Event of Default, such default not having previously been remedied or cured within any applicable grace or cure periods, the Secured Party shall have the following rights and remedies with respect to the Pledged Collateral:

(a) All rights and remedies provided by law, including, without limitation, those provided by the New York Uniform Commercial Code as in effect from time to time (the “Uniform Commercial Code”);

(b) All rights and remedies provided in this Agreement; and

(c) All rights and remedies provided in the Credit Agreement, the Notes, the Security Documents or in any other Loan Document, other agreement, document or instrument pertaining to the Secured Obligations.

The rights and remedies of the Secured Party set forth above shall be exercisable only in connection with a foreclosure on the Pledged Collateral in accordance with the terms hereof. The rights and remedies of the Secured Party under this Pledge Agreement against the Pledgor shall be limited to foreclosure on such Pledged Collateral, and the Secured Party shall not have the right to commence any action against the Pledgors for any deficiency remaining in respect of the Secured Obligations after the exercise of the rights of the Secured Party against the Pledged Collateral in accordance with terms of this Pledge Agreement. The Pledgors may exercise their rights under the Pledged Warrants at any time prior to any foreclosure thereon by the Secured Party and any stock receivable by the Pledgors upon any such exercise shall be delivered to the Secured Party as Pledged Collateral hereunder.

7. Right to Transfer into Name of Secured Party, etc. In case there shall exist an Event of Default that shall be continuing after applicable grace and cure periods, but subject to the provisions of the Uniform Commercial Code or other applicable law, the Secured Party may cause all or any of the Pledged Collateral to be transferred into its name or into the name of its nominee or nominees. So long as no Event of Default shall exist and be continuing, the Pledgors shall be entitled to exercise as the Pledgors shall deem fit, but in a manner not inconsistent with the terms hereof or of the Secured Obligations, the voting power with respect to the Pledged Collateral.

8. Right of Secured Party to Exercise Voting Power, etc. In case there shall exist an Event of Default, which shall not have been remedied or cured, the Secured Party, until such Event of Default has been remedied or cured in accordance with the Credit Agreement shall be entitled to exercise the voting power with respect to the Pledged Collateral, to receive and retain, as collateral security for the Secured Obligations, any and all dividends or other distributions at any time and from time to time declared or made upon any of the Pledged Collateral, and to exercise any and all rights of payment, conversion, exchange, subscription or any other rights,

5

privileges or options pertaining to the Pledged Collateral as if it were the absolute owner thereof, including without limitation, the right to exchange, at its discretion, any and all of the Pledged Collateral upon the merger, consolidation, reorganization, recapitalization or other readjustment of the Borrower or, upon the exercise of any such right, privilege or option pertaining to the Pledged Collateral, and in connection therewith, to deposit and deliver any and all of the Pledged Collateral with any committee, depositary, transfer agent, registrar or other designated agency upon such terms and conditions as the Secured Party may determine, all without liability except to account for property actually received, but the Secured Party shall have no duty to exercise any of the aforesaid rights, privileges or options and shall not be responsible for any failure to do so or delay in so doing.

9. Right of Secured Party to Dispose of Collateral, etc. Upon the occurrence and continuance of an Event of Default, such default not having previously been remedied or cured within any applicable grace or cure periods, the Secured Party shall have the right, unless the Event of Default shall have been remedied or cured in accordance with the Credit Agreement prior to taking any such actions, at any time or times thereafter to sell, resell, assign and deliver all or any of the Pledged Collateral in one or more parcels at any exchange or broker’s board or at public or private sale; provided, however, that the Secured Party shall not sell, resell, assign or deliver any of the Pledged Collateral unless (a) the Secured Party shall sell, resell, assign and deliver all of the Pledged Collateral and (b) simultaneously therewith, the Secured Party shall also sell, resell, assign and deliver all other shares of (and warrants for) capital stock of the Borrower held in pledge by the Secured Party at the time of such sale. Unless the Pledged Collateral is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market, the Secured Party will give the Pledgors at least ten (10) days’ prior written notice at the respective addresses of the Pledgors specified in Section 17 hereof of the time and place of any public sale thereof or of the time after which any private sale or any other intended disposition thereof is to be made. Any such notice shall be deemed to meet any requirement hereunder or under any applicable law (including the Uniform Commercial Code) that reasonable notification be given of the time and place of such sale or other disposition. Such notice may be given without any demand of performance or other demand, all such demands being hereby expressly waived by the Pledgors. All such sales shall be conducted in a commercially reasonable manner and shall be at such commercially reasonable price or prices as the Secured Party shall deem best and either for cash or on credit or for future delivery (without assuming any responsibility for credit risk). At any such sale or sales the Secured Party may purchase any or all of the Pledged Collateral to be sold thereat upon such terms as the Secured Party may deem best. Upon any such sale or sales the Pledged Collateral so purchased shall be held by the purchaser absolutely free from any claims or rights of whatsoever kind or nature, including any equity of redemption and any similar rights, all such equity of redemption and any similar rights being hereby expressly waived and released by the Pledgors. In the event any consent, approval or authorization of any governmental agency will be necessary to effectuate any such sale or sales, the Pledgors shall execute, and hereby agree to cause the Borrower to execute, all such applications or other instruments as may be required. The proceeds of any such sale or sales, together with any other additional collateral security at the time received and held hereunder, shall be received and applied: first, to the payment of all costs and expenses of such sale, including reasonable attorneys’ fees; second, to the payment of the Secured Obligations in such order of priority as the Secured Party shall determine, and any surplus thereafter remaining

6

shall be paid to the Pledgors or to whomever may be legally entitled thereto (including, if applicable, any subordinated creditor of the Borrower or the Pledgors).

The Pledgors recognize that the Secured Party may be unable to effect a public sale of all or a part of the Pledged Collateral by reason of certain prohibitions contained in the Securities Act of 1933, but may be compelled to resort to one or more private sales to a restricted group of purchasers, each of whom will be obligated to agree, among other things, to acquire such Pledged Collateral for its own account, for investment and not with a view to the distribution or resale thereof. The Pledgors acknowledge that private sales so made may be at prices and upon other terms less favorable to the seller than if such Pledged Collateral were sold at public sales, and that the Secured Party has no obligation to delay sale of any such Pledged Collateral for the period of time necessary to permit such Pledged Collateral to be registered for public sale under the Securities Act of 1933. The Pledgors agree that any such private sales shall not be deemed to have been made in a commercially unreasonable manner solely because they shall have been made under the foregoing circumstances.

10. Collection of Amounts Payable on Account of Pledged Collateral, etc. Upon the occurrence and during the continuance of any Event of Default, the Secured Party may, but without obligation to do so, demand, sue for and/or collect any money or property at any time due, payable or receivable, to which it may be entitled hereunder, on account of or in exchange for any of the Pledged Collateral and shall have the right, for and in the name, place and stead of the Pledgors, to execute endorsements, assignments or other instruments of conveyance or transfer with respect to all or any of the Pledged Collateral.

11. Care of Pledged Collateral in Secured Party’s Possession. Beyond the exercise of reasonable care to assure the safe custody of the Pledged Collateral while held hereunder, the Secured Party shall have no duty or liability to collect any sums due in respect thereof or to protect or preserve rights pertaining thereto, and shall be relieved of all responsibility for the Pledged Collateral upon surrendering the same to the Pledgors.

12. Waivers, etc. The Pledgors hereby waive presentment, demand, notice, protest and, except as is otherwise provided herein, all other demands and notices in connection with this Agreement or the enforcement of the Secured Party’s rights hereunder or in connection with any Secured Obligations or any Pledged Collateral; consent to and waive notice of the granting of renewals, extensions of time for payment or other indulgences to the Borrower or the Pledgors or to any third party, or substitution, release or surrender of any collateral security for any Secured Obligation, the addition or release of persons primarily or secondarily liable on any Secured Obligation or on any collateral security for any Secured Obligation, the acceptance of partial payments on any Secured Obligation or on any collateral security for any Secured Obligation and/or the settlement or compromise thereof. No delay or omission on the part of the Secured Party in exercising any right hereunder shall operate as a waiver of such right or of any other right hereunder. Any waiver of any such right on any one occasion shall not be construed as a bar to or waiver of any such right on any future occasion. Each Pledgor further waives any right it may have under the constitutions of any state in which any of the Pledged Collateral may be located or under the Constitution of the United States of America, to notice (other than any requirement of notice provided herein) or to a judicial hearing prior to the exercise of any right or remedy provided by this Agreement to the Secured Party and waives its right, if any, to set

7

aside or invalidate any sale duly consummated in accordance with the foregoing provisions hereof on the grounds (if such be the case) that the sale was consummated without a prior judicial hearing. The Pledgors’ waivers under this section have been made voluntarily, intelligently and knowingly and after the Pledgors have been apprised and counseled by their attorneys as to the nature thereof and its possible alternative rights.

13. Termination; Assignment, etc. This Agreement and the security interest in the Pledged Collateral created hereby shall terminate when all of the Secured Obligations have been paid and finally discharged in full in cash or Cash Equivalents and all of the Commitments under the Credit Agreement are no longer in effect. For all purposes of this Agreement, no Default or Event of Default shall be deemed to have been cured or waived except as expressly provided in the Credit Agreement. No waiver by the Secured Party or any Lender or by any other holder of Secured Obligations of any default shall be effective unless in writing nor operate as a waiver of any other default or of the same default on a future occasion. In the event of a sale or assignment by any Lender of all or any of the Secured Obligations held by it in accordance with the terms of the Credit Agreement, such Lender may assign or transfer its rights and interest under this Agreement in whole or in part to the purchaser or purchasers of such Secured Obligations, whereupon such purchaser or purchasers shall become vested with all of the powers and rights of such Lender hereunder, and such Lender shall thereafter be forever released and fully discharged from any liability or responsibility hereunder with respect to the rights and interest so assigned. At the sole expense of the Pledgors following termination of this Agreement and the termination of the Secured Party’s security interest in the Pledged Collateral, the Secured Party shall return all Pledged Stock and other Pledged Collateral in its possession to the Pledgors (or to the Borrower, as agent for the Pledgors) and shall execute and deliver to the Pledgors such other documents as the Pledgors may reasonably require to evidence the termination of the Secured Party’s security interest in the Pledged Collateral.

14. Reinstatement. Notwithstanding the provisions of Section 13, this Agreement shall continue to be effective or be reinstated, as the case may be, if at any time any amount received by the Credit Parties or the Secured Party in respect of the Secured Obligations is rescinded or must otherwise be restored or returned by the Credit Parties or the Secured Party upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Borrower or any Pledgor or upon the appointment of any intervenor or conservator of, or trustee or similar official for, the Borrower or any Pledgor or any substantial part of their respective properties, or otherwise, all as though such payments had not been made.

15. Governmental Approvals, etc. Upon the exercise by the Secured Party of any power, right, privilege or remedy pursuant to this Agreement which requires any consent, approval, qualification or authorization of any governmental authority or instrumentality, the Pledgors will execute and deliver, or will cause the execution and delivery of, all applications, certificates, instruments and other documents and papers that the Secured Party may be required to obtain for such governmental consent, approval, qualification or authorization.

16. Restrictions on Transfer, etc. To the extent that any restrictions imposed by the charter or by-laws of any Borrower, the Shareholders Agreement or any other agreement among the holders of capital stock of the Borrower or other document or instrument would in any way affect or impair the pledge of the Pledged Collateral hereunder or the exercise by the Secured

8

Party of any right granted hereunder, including, without limitation, the right of the Secured Party to dispose of the Pledged Collateral upon the occurrence of any Event of Default, the Pledgors hereby waive such restrictions, and represent and warrant that they will cause all shares of Capital Stock of the Borrower held by them to be voted to cause the Borrower to take all necessary action to waive such restrictions, and the Pledgors hereby agree that they will take any further action which the Secured Party may reasonably request in order that the Secured Party may obtain and enjoy the full rights and benefits granted to the Secured Party by this Agreement free of any such restrictions. Without limiting the generality of the foregoing, each Pledgor agrees that, notwithstanding the provisions of Section 2D of the Shareholders Agreement, any purchaser of Pledged Collateral, including any Credit Party, who acquires any Pledged Collateral pursuant to the terms of this Agreement, shall take such Pledged Collateral free and clear of all terms of the Shareholders Agreement and neither such Persons nor such Pledged Collateral shall thereafter be subject to any term or condition of the Shareholders Agreement.

17. Notices. Except as otherwise provided herein, all notices to the Pledgors or to the Secured Party shall be in writing and shall be deemed to have been sufficiently given or served for all purposes hereof if personally delivered or mailed by first class mail, postage prepaid, as follows:

(a) if to the Pledgors:

Austin Ventures III-A, L.P.

Austin Ventures III-B, L.P.

Austin Ventures V, L.P.

Austin Ventures V Affiliates Fund, L.P.

300 West 6th Street, Suite 2300

Austin, TX 78701

Attention: Blaine F. Wesner

with a copy to:

Jenkens & Gilchrist, P.C.

1445 Ross Avenue, Suite 3200

Dallas, TX 75202-2799

Attention: Gregory J. Schmitt, Esq.

and to:

Capital Resource Lenders II, L.P.

85 Merrimac Street, Suite 200

Boston, MA 02114

Attention: Stephen M. Jenks

9

with a copy to:

Testa, Hurwitz & Thibeault, LLP

High Street Tower

125 High Street

Boston, MA 02110

Attention: Andrew E. Taylor, Jr., Esq.

and to:

ABRY Partners IV, L.P.

ABRY Investment Partnership, L.P.

18 Newbury Street

Boston, MA 02116

Attention: Jay Grossman

with a copy to:

Kirkland & Ellis

153 East 53rd Street

New York, NY 10022

Attention: John Kuehn, Esq.

and to:

New York Life Capital Partners II, L.P.

51 Madison Avenue

Suite 3009 (30^th Floor)

New York, NY 10010

Attention: John Schumacher

with a copy to:

Arnold & Porter

399 Park Avenue

New York, NY 10022

Attention: Christine D. Rogers, Esq.

and to:

PPM America Private Equity Fund LP

225 W. Wacker Drive, Suite 1200

Chicago, IL 60606

Attention: Bruce Saewitz

10

with a copy to:

Kirkland & Ellis LLP

200 East Randolph Drive

Chicago, IL 60601

Attention: John A. Weissenbach

and to:

Hull Family Limited Partnership

c/o James R. Hull at Monitronics International, Inc.

12801 Stemmons Freeway, Suite 821

Dallas, TX 75234

and to:

Robert Sherman

c/o Monitronics International, Inc.

12801 Stemmons Freeway, Suite 821

Dallas, TX 75234

and to:

Michael Gregory

c/o Monitronics International, Inc.

12801 Stemmons Freeway, Suite 821

Dallas, TX 75234

and to:

Michael Meyers

c/o Monitronics International, Inc.

12801 Stemmons Freeway, Suite 821

Dallas, TX 75234

and to:

Stephen Hedrick

c/o Monitronics International, Inc.

12801 Stemmons Freeway, Suite 821

Dallas, TX 75234

with a copy to:

Vinson & Elkins L.L.P.

2001 Ross Avenue, Suite 3700

Dallas, TX 75201

Attention: James Markus, Esq.

11

(b) if to the Secured Party:

Fleet National Bank

100 Federal Street

Boston, MA 02110

Attention: John F. Lynch, Senior Vice President

with a copy to:

Peter M. Palladino, P.C.

Choate, Hall & Stewart

Exchange Place

53 State Street

Boston, MA 02109

or at such other address as the party to whom such notice is directed may have designated in writing to the other party hereto. A notice shall be deemed to have been given upon the earlier to occur of (i) three (3) days after the date on which it is deposited in the U.S. mails or (ii) receipt by the party to whom such notice is directed.

18. Miscellaneous. This Agreement shall inure to the benefit of and be binding upon the Secured Party, the Credit Parties and the Pledgor and their respective successors and assigns, and the term “Credit Parties” shall be deemed to include any other holder or holders of any of the Secured Obligations and the term “Secured Party” shall be deemed to include any successor agent for the Credit Parties. In case any provision in this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. This Agreement may be executed in any number of counterparts, including facsimile counterparts, and by the different parties hereto on separate counterparts, each of which shall be an original, but all of which together shall constitute one instrument.

19. Governing Law; Jurisdiction; Waiver of Jury Trial. This Agreement, including the validity hereof and the rights and obligations of the parties hereunder, shall be governed by, and construed in accordance with, the internal laws (as opposed to the conflicts of law provisions, but including sections 5-1401 and 5-1402 of the general obligations law of the State of New York) and decisions of the State of New York. Each party hereto hereby irrevocably submits to the nonexclusive jurisdiction of any New York or Federal court sitting in the City of New York, New York over any suit, action or proceeding arising out of or relating to this Agreement and waives, to the fullest extent permitted or not prohibited by law, any objection which it may now or hereafter have to the laying of the venue of any such suit, action or proceeding brought in such a court and any claim that any such suit, action or proceeding brought in such a court has been brought in an inconvenient forum. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES

12

THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 19.

20. Amendment and Restatement. This Agreement amends, restates and supersedes the Pledge Agreement dated as of August 25, 2003 among the Borrower, the Pledgors named therein and the Secured Party.

[Signature pages follow]

13

IN WITNESS WHEREOF, the parties have executed this Amended and Restated Pledge Agreement as a sealed instrument as of the date first above written.

AUSTIN VENTURES III-A, L.P.
By:	AV Partners III, L.P.,
	General Partner
By:	/s/ Blaine F. Wesner
	Blaine F. Wesner
	Authorized Signatory
AUSTIN VENTURES III-B, L.P.
By:	AV Partners III, L.P.,
	General Partner
By:	/s/ Blaine F. Wesner
	Blaine F. Wesner
	Authorized Signatory
AUSTIN VENTURES V, L.P.
By:	AV Partners V, L.P.
	Its General Partner
By:	/s/ Blaine F. Wesner
	Blaine F. Wesner,
	General Partner
AUSTIN VENTURES V AFFILIATES FUND, L.P.
By:	AV Partners V, L.P.
	Its General Partner
By:	/s/ Blaine F. Wesner
	Blaine F. Wesner
	General Partner

CAPITAL RESOURCE LENDERS II, L.P.
By:	Capital Resource Partners II, L.P.,
	Its General Partner
By:	/s/ Robert Ammerman
	Its General Partner
By:
	Name:
	Title:
NEW YORK LIFE CAPITAL PARTNERS II, L.P.
By:	NYLCAP Manager, LLC,
	Its General Partner
By:	/s/ John E. Schumacher
	Name: John E. Schumacher
	Title:
PPM AMERICA PRIVATE EQUITY FUND LP
By:	PPM America Capital Partners, LLC,
	Its General Partner
By:	/s/ Bruce Saewitz
	Name: Bruce Saewitz
	Title: Senior Partner
By:	/s/ Austin Krumpfes
	Name: Austin Krumpfes
	Title: Associate

ABRY PARTNERS IV, L.P.
By:	ABRY Capital Partners, L.P.,
	its general partner
By:	/s/ Jay M. Grossman
	Name: Jay M. Grossman
	Title:
ABRY INVESTMENT PARTNERSHIP, L.P.
By:	ABRY Investment GP, LLC,
	its general partner
By:	/s/ Jay M. Grossman
	Name: Jay M. Grossman
	Title:
HULL FAMILY LIMITED PARTNERSHIP
By:	James R. Hull Management Trust,
	Its General Partner
By:	/s/ James R. Hull
	James R. Hull, Trustee
/s/ James R. Hull
James R. Hull, individually
c/o Monitronics International, Inc.
12801 Stemmons Freeway, Suite 821
Dallas, TX 75234
/s/ Robert Sherman
Robert Sherman, individually
c/o Monitronics International, Inc.
12801 Stemmons Freeway, Suite 821
Dallas, TX 75234

/s/ Michael Meyers

Michael Meyers, individually

c/o Monitronics International, Inc.

12801 Stemmons Freeway, Suite 821

Dallas, TX 75234

/s/ Michael Gregory

Michael Gregory, individually

c/o Monitronics International, Inc.

12801 Stemmons Freeway, Suite 821

Dallas, TX 75234

/s/ Stephen Hedrick

Stephen Hedrick, individually

c/o Monitronics International, Inc.

12801 Stemmons Freeway, Suite 821

Dallas, TX 75234

ACKNOWLEDGMENT:

The Borrower acknowledges the provisions of the within Pledge Agreement, specifically the provisions of subsection 3(h) relating to the Option Plans, and covenants to the Secured Party that in the event any shares of capital stock of the Borrower are to be issued to any Pledgor pursuant to such Option Plans, or otherwise such shares will be delivered directly to the Secured Party.

MONITRONICS INTERNATIONAL, INC.
By:	/s/ James R. Hull
	James R. Hull
	President and CEO
ACKNOWLEDGED AND ACCEPTED:
FLEET NATIONAL BANK, as Administrative Agent
By:	/s/ John F. Lynch
	Name: John F. Lynch
	Title: Senior Vice President

Owner and Address	Description	No. of Shares	% Owned	Certificate No(s).
ABRY Partners IV, L.P. 111 Huntington Avenue, 30th Floor Boston, MA 02199	Class A Common Stock	17,121,419	44.908%	122
ABRY Investment Partnership, L.P. 111 Huntington Avenue, 30th Floor Boston, MA 02199	Class A Common Stock	10,570	0.28%	123
Austin Ventures III-A, L.P. 701 Brazos, Suite 1400 Austin, TX 78701	Series A Preferred Stock	3,353,621	8.796%	1
Austin Ventures III-B, L.P. 701 Brazos, Suite 1400 Austin, TX 78701	Series A Preferred Stock	2,832,733	7.430%	2
Austin Ventures V, L.P. 701 Brazos, Suite 1400 Austin, TX 78701	Series A Preferred Stock	1,905,449	4.998%	3
Austin Ventures V Affiliates Fund, L.P. 701 Brazos, Suite 1400 Austin, TX 78701	Series A Preferred Stock	95,272	0.250%	4
Capital Resource Lenders II, L.P. 85 Merrimac Street, Suite 200 Boston, MA 02114	Class A Common Stock	2,964,585	7.776%	124
New York Life Capital Partners II, L.P. 51 Madison Avenue, Suite 3009 (30th Floor) New York, NY 10010	Class A Common Stock	5,000,000	13.115%	127
PPM America Private Equity Fund LP 225 W. Wacker Drive, Suite 1200 Chicago, IL 60606	Class A Common Stock	3,333,333	8.743%	128
Hull Family Limited Partnership c/o James R. Hull Monitronics International, Inc. 12801 Stemmons Freeway, Suite 821 Dallas, TX 75234	Class A Common Stock	291,998 244,220	1.406%	108 121
Robert Sherman c/o Monitronics International, Inc. 12801 Stemmons Freeway, Suite 821 Dallas, TX 75234	Class A Common Stock	12,412 114,395 70,736 89,538	0.753%	12 16 30 109

Owner and Address	Description	No. of Shares	% Owned	Certificate No(s).
Michael Gregory c/o Monitronics International, Inc. 12801 Stemmons Freeway, Suite 821 Dallas, TX 75234	Class A Common Stock	49,498 22,435	0.189%	38 110
Stephen Hedrick c/o Monitronics International, Inc. 12801 Stemmons Freeway, Suite 821 Dallas, TX 75234	Class A Common Stock	32,999 16,499 22,435	0.189%	19 33 111
Michael Meyers c/o Monitronics International, Inc. 12801 Stemmons Freeway, Suite 821 Dallas, TX 75234	Class A Common Stock	86,553 39,231	0.330%	31 112
TOTAL PLEDGED STOCK		37,709,931	98.911%

PLEDGED NOTES

None.

PLEDGED WARRANTS

None.

EX-10.15

Exhibit 10.15

FIFTH AMENDED AND RESTATED REGISTRATION AGREEMENT

This Fifth Amended and Restated Registration Agreement (the “Agreement”) is entered into as of July 14, 2004, by and among Monitronics International, Inc., a Texas corporation (the “Company”), and the holders of common stock and convertible securities of the Company listed on the Schedule of Common Holders attached hereto (the “Common Holders”).

The Company, the holders of the Company’s Series A Preferred Stock, $0.01 par value per share (the “Old Series A”), Series B Preferred Stock, $0.01 par value per share (the “Old Series B”), Series C Preferred Stock, $0.01 par value per share, Series C-1 Preferred Stock, $0.01 par value per share (collectively, the “Old Series C”), and Series D-1 Preferred Stock, $0.01 par value per share (collectively, all such preferred stock of the Company, the “Old Preferred Stock”) and the holders of warrants to purchase Class A Common Stock (the “Warrant Holders”) have entered into the Recapitalization Agreement dated as of the date hereof (the “Recapitalization Agreement”) pursuant to which (a) certain holders of Old Preferred Stock (other than certain holders of Old Series C) shall exchange all of their shares of Old Preferred Stock held by such holders for shares of Class A Common Stock, (b) certain holders of Old Series A and Old Series B shall exchange all of their shares of Old Series A and Old Series B for shares of new Series A Preferred Stock, (c) the Warrant Holders (other than the holder of the 2002 Warrants) shall exercise their warrants for shares of (i) Class A Common Stock in the case of Capital Resource Lenders II, L.P., and (ii) new Series A Preferred Stock, in the case of Austin Ventures, and (d) the Company shall redeem shares of Old Series C from certain holders of Old Series C, and new investors listed on the signature pages hereto are purchasing shares of Class A Common Stock from certain holders of Class A Common Stock who received such Class A Common Stock pursuant to the exchange described in subsection (a) of this paragraph pursuant to the Stock Purchase Agreement, dated as of the date hereof, among the Company, such holders of Class A Common Stock and such new investors immediately following the transactions contemplated by the Recapitalization Agreement (the “Recapitalization”).

The Company and Heller Financial, Inc. (“Heller”) are parties to a Warrant Agreement, dated as of November 10, 1994, as amended by that certain First Amendment to Warrant Agreement, dated as of June 15, 1998 (as so amended, the “Heller Warrant Agreement”), providing, among other things, for the issuance to Heller of 367,238 shares of Class B Common Stock (subject to adjustment as provided in the Heller Warrant Agreement) (the “Heller Warrant”).

The Company, the Preferred Holders referred to therein, the Warrant Holders referred to therein and the Common Shareholders referred to therein are parties to a Fourth Amended and Restated Registration Agreement, dated as of January 18, 2002 (the “Fourth Amended and Restated Registration Agreement”).

The parties hereto are entering into a Fifth Amended and Restated Shareholders Agreement, dated as of the date hereof (as in effect from time to time, the “Shareholders Agreement”), simultaneously with the execution of this Agreement.

The parties hereto desire to amend and restate and supercede and replace the Fourth Amended and Restated Registration Agreement in its entirety in order to facilitate the transactions contemplated by the Recapitalization Agreement.

Capitalized terms not defined elsewhere herein shall have the respective meanings assigned to them in the Shareholders Agreement.

The parties hereto agree that the Fourth Amended and Restated Registration Agreement shall be amended and restated in its entirety by this Agreement as follows:

1. Demand Registrations.

(a) Requests for Registration. Subject to the terms and conditions of this Agreement, (i) at any time and from time to time, the holders of (a) a majority of the ABRY Registrable Securities (the “ABRY Demand”) so long as ABRY and its Affiliates collectively hold at least (X) 75% of the number of shares of Common Stock such Persons collectively hold immediately following the Recapitalization (as appropriately and equitably adjusted for stock splits, stock combinations and the like) or (Y) at least 32.4% of the Common Stock on a fully diluted as if converted basis (any time during which the collective holdings of ABRY and its Affiliates do not comply with either clause (X) or (Y) above being a “Transfer Period”), or (b) during any Transfer Period, a majority of the Registrable Securities (the “Majority Demand”), and (ii) at any time following the Initial Public Offering, the holders of at least 66²/₃% of the 2002 Warrant Shares that are Registrable Securities (the “Warrant Demand”) (the Persons entitled to initiate such demand registration in any case above the “Initiating Holders”), may request registration under the Securities Act of all or any portion of their Registrable Securities on Form S-1 or any similar long-form registration (“Long-Form Registrations”), or on Form S-2 or S-3 or any similar short-form registration (“Short-Form Registrations”), if available. All registrations requested pursuant to this Paragraph 1(a) are referred to herein as “Demand Registrations”. Each request for a Demand Registration shall specify the approximate number of Registrable Securities requested to be registered, the anticipated per share price range for such offering and the intended method of distribution. Within ten days after receipt of any such request, the Company shall give written notice of such requested registration to all other holders of Registrable Securities and, subject to the terms of Paragraph 1(d) hereof, shall include in such registration (and in all related registrations and qualifications under state blue sky laws or in compliance with other registration requirements and in any related underwriting) all Registrable Securities with respect to which the Company has received written requests for inclusion therein within 15 days after the receipt of the Company’s notice.

(b) Long-Form Registrations. The holders entitled to make an ABRY Demand or a Majority Demand shall be entitled to request an aggregate of two Long-Form Registrations pursuant to Paragraph 1(a) above, and the holders entitled to make a Warrant Demand shall be entitled to request one Long-Form Registration pursuant to Paragraph 1(a) above at any time after the Initial Public Offering. A registration shall not count as one of the permitted Long-Form Registrations unless it has become effective and there has not been any stop order, injunction or other order or requirement of the Securities and Exchange Commission or other governmental agency or court suspending such effectiveness. Additionally, neither the last nor any subsequent Long-Form Registration shall count as one of the permitted Long-Form Registrations unless the Initiating Holders are able to register and sell at least 90% of the Registrable Securities that the Initiating Holders requested to be included in such registration;

2

provided that in any event the Company shall pay all Registration Expenses in connection with any registration initiated as a Long-Form Registration whether or not it has become effective and whether or not such registration has counted as one of the permitted Long-Form Registrations. All Long-Form Registrations shall be underwritten registrations.

(c) Short-Form Registrations. In addition to the Long-Form Registrations provided pursuant to Paragraph 1(b), the Initiating Holders shall be entitled to request an unlimited number of Short-Form Registrations pursuant to Paragraph 1(a) above; provided, that the Company shall not be obligated to effect a registration under this Paragraph 1(c) if the fair market value of the shares to be registered is less than $10 million; provided further, that the Company shall not be obligated to effect more than two Short-Form Registrations or registrations on any comparable or successor form or forms during any 12-month period. Demand Registrations shall be Short-Form Registrations whenever the Company is permitted to use any applicable short form and if the managing underwriters (if any) agree to the use of a Short-Form Registration. After the Company has become subject to the reporting requirements of the Securities Exchange Act, the Company shall use its best efforts to make Short-Form Registrations on Form S-3 available for the sale of Registrable Securities.

(d) Priority on Demand Registrations. Subject to the provisions of the Heller Warrant Agreement, the Company shall not include in any Demand Registration any securities which are not Registrable Securities (“Other Securities”) without the prior written consent of the holders of at least a majority of the Registrable Securities held by the Initiating Holders that initially requested such registration. If a Demand Registration is an underwritten offering and the managing underwriters advise the Company in writing that in their opinion the number of Registrable Securities and, if permitted hereunder, Other Securities requested to be included in such offering exceeds the number of Registrable Securities and Other Securities, if any, which can be sold in an orderly manner in such offering within a price range acceptable to the holders of a majority of the Registrable Securities held by the Initiating Holders that initially requested registration, the Company shall include in such registration prior to the inclusion of any other securities, up to the aggregate quantity of shares which, in the opinion of such underwriters, can be sold in an orderly manner within the price range of such offering without adversely affecting the marketability of the offering: (i) first, any Company Registrable Securities included in such offering pursuant to Section 4(c), (ii) second, the Issued Warrant Shares (as defined in the Heller Warrant Agreement), (iii) third, in the case of a Warrant Demand, any Registrable Securities that the Initiating Holders of such Warrant Demand have requested be included in such offering pursuant to Section 1(a) and (iv) fourth, the number of Registrable Securities requested to be included and the Other Securities permitted to be included, pro rata among the respective holders thereof on the basis of the quantity of Registrable Securities and such Other Securities that each such holder has requested the Company to include in such registration.

(e) Restrictions on Long-Form Registrations. The Company shall not be obligated to effect any Long-Form Registration within 180 days after the effective date of a previous Long-Form Registration or a previous registration in which Registrable Securities were included pursuant to Paragraph 2 and in which there was no reduction in the number of Registrable Securities requested to be included. The Company shall postpone for up to 180 days the filing or the effectiveness of a registration statement for a Demand Registration if a majority of the members of the Company’s board of directors (or a majority of the directors who were not

3

designated by holders of ABRY Registrable Securities pursuant to the Shareholders Agreement, if holders of a majority of the ABRY Registrable Securities are the Initiating Holders) determines in their reasonable good faith judgment that such Demand Registration would reasonably be expected to have a material adverse effect on any proposal or plan by the Company or any of its Subsidiaries to engage in any acquisition of assets (other than in the ordinary course of business) or any merger, consolidation, tender offer, reorganization or similar transaction; provided that in such event, the holders of Registrable Securities initially requesting such Demand Registration shall be entitled to withdraw such request and, if such request is withdrawn, such Demand Registration shall not count as one of the permitted Demand Registrations hereunder and the Company shall pay all Registration Expenses in connection with such registration. The Company may delay a Demand Registration hereunder only once in any twelve-month period.

(f) Selection of Underwriters. The holders of a majority of the Registrable Securities held by the Initiating Holders shall have the right to select the investment banker(s) and manager(s) to administer the offering.

(g) Other Registration Rights. The Company represents and warrants that it is not a party to, or otherwise subject to, any other agreement granting registration rights to any other Person with respect to any securities of the Company other than the Heller Warrant Agreement and the Hull Agreement. Except as provided in this Agreement, the Company shall not grant to any Persons the right to request the Company to register any equity securities of the Company, or any securities convertible or exchangeable into or exercisable for such securities, without the prior written consent of the holders of a majority of the (a) ABRY Registrable Securities, during any period that does not constitute a Transfer Period, or (b) Registrable Securities, during any Transfer Period.

2. Piggyback Registrations.

(a) Right to Piggyback. Whenever the Company proposes to register any of its equity securities under the Securities Act (other than pursuant to a Demand Registration) and the registration form to be used may be used for the registration of Registrable Securities (a “Piggyback Registration”), the Company shall give prompt written notice to all holders of Registrable Securities of its intention to effect such a registration and, subject to the terms of Paragraphs 2(c) and 2(d) hereof and the provisions of the Heller Warrant Agreement and the Hull Agreement, shall include in such registration (and in all related registrations or qualifications under blue sky laws or in compliance with other registration requirements and in any related underwriting) all Registrable Securities with respect to which the Company has received written requests for inclusion therein within 15 days after the receipt of the Company’s notice.

(b) Piggyback Expenses. The Registration Expenses of the holders of Registrable Securities shall be paid by the Company in all Piggyback Registrations as provided in Paragraph 5.

(c) Priority on Primary Registrations. If a Piggyback Registration is an underwritten primary registration on behalf of the Company, and the managing underwriters

4

advise the Company in writing that in their opinion the number of securities requested to be included in such registration exceeds the number that can be sold in an orderly manner in such offering within a price range acceptable to the Company, the Company shall include in such registration, up to the aggregate quantity of shares which, in the opinion of such underwriters, can be sold in an orderly manner within the price range of such offering without adversely affecting the marketability of the offering: (i) first, the securities the Company proposes to sell, (ii) second, the Issued Warrant Shares, and (iii) third, the Registrable Securities requested to be included in such registration and the Other Securities requested to be included in such registration pursuant to rights granted by the Company, pro rata among the holders of such Registrable Securities and the Other Securities on the basis of the quantity of Registrable Securities and such Other Securities that each holder has requested the Company to include in such registration.

(d) Priority on Secondary Registrations. If a Piggyback Registration is an underwritten secondary registration on behalf of holders of the Company’s securities, and the managing underwriters advise the Company in writing that in their opinion the number of securities requested to be included in such registration exceeds the number that can be sold in an orderly manner in such offering within a price range acceptable to the holders initially requesting such registration, the Company shall include in such registration, up to the aggregate number of shares which, in the opinion of such underwriters, can be sold in an orderly manner within the price range of such offering without adversely affecting the marketability of the offering: (i) first, the Issued Warrant Shares, and (ii) second, the Registrable Securities requested to be included in such registration and the Other Securities requested to be included in such registration pursuant to rights granted by the Company, pro rata among the holders of such Registrable Securities and the Other Securities on the basis of the quantity of Registrable Securities and such Other Securities that each holder has requested the Company to include in such registration.

(e) Other Registrations. If the Company has previously filed a registration statement with respect to Registrable Securities pursuant to Paragraph 1 or pursuant to this Paragraph 2, and if such previous registration has not been withdrawn or abandoned, the Company shall not file or cause to be effected any other registration of any of its equity securities or securities convertible or exchangeable into or exercisable for its equity securities under the Securities Act (except on Form S-8 or any successor form), whether on its own behalf or at the request of any holder or holders of such securities, until a period of at least 90 days has elapsed from the effective date of such previous registration.

3. Holdback Agreements.

(a) Each holder of Registrable Securities shall not effect any public sale or distribution (including sales pursuant to Rule 144 under the Securities Act) of Common Stock, or any securities convertible into or exchangeable or exercisable for Common Stock, during the seven days prior to and the 180-day period beginning on the effective date of any registered underwritten public offering of Common Stock (except as part of such underwritten registration), whether or not Registrable Securities are included therein, unless the underwriters managing the registered public offering otherwise agree. The provisions of this Section 3(a) shall not apply to Common Stock, or any securities convertible into or exchangeable or exercisable for Common

5

Stock, acquired by a holder of Registrable Securities in the public markets in or following the Initial Public Offering.

(b) The Company shall not effect any public sale or distribution of Common Stock, or any securities convertible into or exchangeable or exercisable for Common Stock, during the seven days prior to and during the 90-day period beginning on the effective date of any underwritten Demand Registration or any underwritten Piggyback Registration (except as part of such underwritten registration or pursuant to registrations on Form S-8 or any successor form), unless the underwriters managing the registered public offering otherwise agree.

4. Registration Procedures. Whenever the holders of Registrable Securities have requested that any Registrable Securities be registered pursuant to this Agreement, the Company shall use its best efforts to effect the registration and the sale of such Registrable Securities in accordance with the intended method of disposition thereof, and pursuant thereto the Company shall as expeditiously as possible:

(a) prepare and file with the Securities and Exchange Commission a registration statement, and all amendments and supplements thereto and related prospectuses as may be necessary to comply with applicable securities laws, with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective (provided that before filing a registration statement or prospectus or any amendments or supplements thereto, the Company shall furnish to the counsel selected by the holders of a majority of the Registrable Securities held by Initiating Holders (in the case of a Demand Registration) or by the holders of a majority of the Registrable Securities covered by such Registration Statement (in the case of a Piggyback Registration) copies of all such documents proposed to be filed, which documents shall be subject to the review and comment of such counsel);

(b) notify each holder of Registrable Securities of the effectiveness of each registration statement filed hereunder and prepare and file with the Securities and Exchange Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for a period of not less than 180 days and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement during such period in accordance with the intended methods of distribution by the sellers thereof set forth in such registration statement;

(c) in the case of the Initial Public Offering only, if requested by the holders of a majority of the (i) ABRY Registrable Securities, during any period that does not constitute a Transfer Period, or (ii) Registrable Securities, during any Transfer Period, use its commercially reasonable efforts to cause to be included in such registration statement Common Stock to be newly issued by the Company (“Company Registrable Securities”) and offered in a primary offering of Common Stock contemporaneously with any offering on behalf of the holders of Registrable Securities;

(d) furnish to each seller of Registrable Securities such number of copies of such registration statement, each amendment and supplement thereto, the prospectus included in

6

such registration statement (including each preliminary prospectus) and such other documents as any seller may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such seller;

(e) use its best efforts to register or qualify such Registrable Securities under such other securities or blue sky laws of such jurisdictions as any seller reasonably requests and do any and all other acts and things which may be reasonably necessary or advisable to enable such seller to consummate the disposition in such jurisdictions of the Registrable Securities owned by such seller (provided that the Company shall not be required to (i) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this subparagraph, (ii) subject itself to taxation in any such jurisdiction or (iii) consent to general service of process in any such jurisdiction);

(f) notify each seller of such Registrable Securities at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in such registration statement contains an untrue statement of a material fact or omits any fact necessary to make the statements therein not misleading, and, at the request of any such seller, the Company shall prepare a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of such Registrable Securities such prospectus shall not contain an untrue statement of a material fact or omit to state any fact necessary to make the statements therein not misleading;

(g) use commercially reasonable efforts to cause all such Registrable Securities to be listed on each securities exchange on which similar securities issued by the Company are then listed and to be qualified for trading on each system on which similar securities issued by the Company are from time to time qualified and, if not so listed, to be quoted on the NASD automated quotation system;

(h) provide a transfer agent and registrar for all such Registrable Securities not later than the effective date of such registration statement and thereafter maintain such a transfer agent and registrar;

(i) enter into such customary agreements (including underwriting agreements in customary form) and take all such other actions as the holders of a majority of the Registrable Securities being sold or the underwriters, if any, reasonably request in order to expedite or facilitate the disposition of such Registrable Securities (including effecting a stock split or a combination of shares);

(j) make available for inspection by any seller of Registrable Securities, any underwriter participating in any disposition pursuant to such registration statement and any attorney, accountant or other agent retained by any such seller or underwriter, all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company’s officers, directors, employees and independent accountants to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with such registration statement;

7

(k) otherwise use its best efforts to comply with all applicable rules and regulations of the Securities and Exchange Commission, and make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve months beginning with the first day of the Company’s first full calendar quarter after the effective date of the registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder;

(l) permit any holder of Registrable Securities, which holder, in its sole and exclusive judgment, might be deemed to be an underwriter or a controlling person of the Company, to participate in the preparation of such registration or comparable statement and to require the insertion therein of material, furnished to the Company in writing, which in the reasonable judgment of such holder and its counsel should be included; and

(m) in the event of the issuance of any stop order suspending the effectiveness of a registration statement, or of any order suspending or preventing the use of any related prospectus or suspending the qualification of any Common Stock included in such registration statement for sale in any jurisdiction, the Company shall use its best efforts promptly to obtain the withdrawal of such order.

If any such registration or comparable statement refers to any holder by name or otherwise as the holder of any securities of the Company and if, in its sole and exclusive judgment, such holder is or might be deemed to be an underwriter or a controlling person of the Company, such holder shall have the right to require (i) the insertion therein of language, in form and substance satisfactory to such holder and presented to the Company in writing, to the effect that the holding by such holder of such securities is not to be construed as a recommendation by such holder of the investment quality of the Company securities covered thereby and that such holding does not imply that such holder shall assist in meeting any future financial requirements of the Company, or (ii) in the event that such reference to such holder by name or otherwise is not required by the Securities Act or any similar Federal statute then in force, the deletion of the reference to such holder; provided that with respect to this clause (ii) such holder shall furnish to the Company an opinion of counsel to such effect, which opinion and counsel shall be reasonably satisfactory to the Company.

5. Registration Expenses.

(a) All expenses incident to the Company’s performance of or compliance with this Agreement, including, without limitation, all registration, qualification and filing fees, fees and expenses of compliance with securities or blue sky laws, printing expenses, messenger and delivery expenses, fees and disbursements of custodians, and fees and disbursements of counsel for the Company and all independent certified public accountants, underwriters (excluding discounts and commissions) and other Persons retained by the Company (all such expenses being herein called “Registration Expenses”), shall be borne by the Company, and the Company shall pay its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit or quarterly review, the expense of any liability insurance and the expenses and fees for listing the securities to be registered on each securities exchange on which similar securities issued by the Company are then listed or qualifying the securities to be registered for trading on

8

each system on which similar securities issued by the Company are from time to time qualified or on the NASD automated quotation system.

(b) In connection with each Demand Registration and each Piggyback Registration, the Company shall reimburse the holders of Registrable Securities included in such registration for the reasonable fees and disbursements of one counsel chosen by the holders of a majority of the Registrable Securities held by the Initiating Holders (in the case of a Demand Registration) or by the holders of a majority of the Registrable Securities covered by such Registration Statement (in the case of a Piggyback Registration).

6. Indemnification.

(a) The Company agrees to indemnify, to the fullest extent permitted by law, each holder of Registrable Securities and its officers and directors and each Person who controls such holder (within the meaning of either the Securities Act and Securities Exchange Act) against all losses, claims, actions, damages, liabilities and expenses caused by (i) any untrue or alleged untrue statement of material fact contained in any registration statement, prospectus or preliminary prospectus or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, or (ii) any violation or alleged violation by the Company of the Securities Act or any other similar Federal or state securities laws or any rule or regulation promulgated thereunder applicable to the Company and relating to any action required by or inaction of, the Company in connection with any such registration, qualification or compliance, and to pay to each holder of Registrable Securities and its officers and directors and each Person who controls such holder (within the meaning of either the Securities Act or the Securities Exchange Act), as incurred, any legal and any other expenses reasonably incurred in connection with investigating, preparing or defending any such claim, loss, damage, liability or action, except insofar as the same are caused by or contained in any information furnished in writing to the Company by such holder expressly for use therein or by such holder’s failure to deliver a copy of the registration statement or prospectus or any amendments or supplements thereto after the Company has furnished such holder with a sufficient number of copies of the same. In connection with an underwritten offering, the Company shall indemnify such underwriters, their officers and directors and each Person who controls such underwriters (within the meaning of either the Securities Act or the Securities Exchange Act) to the same extent as provided above with respect to the indemnification of the holders of Registrable Securities.

(b) In connection with any registration statement in which a holder of Registrable Securities is participating, each such holder shall furnish to the Company in writing such information and affidavits as the Company reasonably requests for use in connection with any such registration statement or prospectus and, to the extent permitted by law, shall indemnify the Company, its directors and officers and each Person who controls the Company (within the meaning of either the Securities Act or the Securities Exchange Act) against any losses, claims, damages, liabilities and expenses resulting from any untrue or alleged untrue statement of material fact contained in the registration statement, prospectus or preliminary prospectus or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, but only to the extent that such untrue statement or omission is contained in any information or affidavit

9

so furnished in writing by such holder expressly for use in any registration statement or prospectus relating to such registration; provided that the obligation to indemnify shall be individual, not joint and several, for each holder and shall be limited to the net amount of proceeds received by such holder from the sale of Registrable Securities pursuant to such registration statement.

(c) Any Person entitled to indemnification hereunder shall (i) give prompt written notice to the indemnifying party of any claim with respect to which it seeks indemnification (provided that the failure to give prompt notice shall not impair any Person’s right to indemnification hereunder to the extent such failure has not prejudiced the indemnifying party) and (ii) unless, in such indemnified party’s reasonable judgment, a conflict of interest between such indemnified and indemnifying parties may exist with respect to such claim, permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party. If such defense is assumed, the indemnifying party shall not be subject to any liability for any settlement made by the indemnified party without its consent (but such consent shall not be unreasonably withheld). An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim shall not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless, in the reasonable judgment of any indemnified party, a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim.

(d) The indemnification provided for under this Agreement shall remain in full force and effect regardless of any investigation made by or on behalf of the indemnified party or any officer, director or Person who controls (within the meaning of either the Securities Act or the Securities Exchange Act) such indemnified party and shall survive the transfer of securities of the Company. The Company also agrees to make such provisions, as are reasonably requested by any indemnified party, for contribution to such party in the event the Company’s indemnification is unavailable for any reason.

7. Participation in Underwritten Registrations. No Person may participate in any registration hereunder that is underwritten unless such Person (a) agrees to sell such Person’s securities on the basis provided in any underwriting arrangements approved by the Person or Persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements; provided that no holder of Registrable Securities included in any underwritten registration shall be required to make any representations or warranties to the Company or the underwriters (other than representations and warranties regarding such holder and such holder’s intended method of distribution) or to undertake any indemnification obligations of the Company or the underwriters with respect thereto, except as otherwise provided in Paragraph 6 hereof.

8. Additional Parties; Joinder. Subject to Paragraph 10(a), with the approval of holders of a majority of the (a) ABRY Registrable Securities, during any period that does not constitute a Transfer Period, or (b) Registrable Securities, during any Transfer Period, the Company may permit any Person who acquires Common Stock or rights to acquire Common Stock after the date hereof (the “Acquired Common”) to become a party to this Agreement and

10

to succeed to all of the rights and obligations of a “holder of Registrable Securities” under this Agreement by obtaining an executed joinder to this Agreement from such Person in the form of Exhibit A attached hereto, and upon the execution and delivery of the joinder by such Person, such Person shall for all purposes be a “holder of Registrable Securities” under this Agreement with respect to the Acquired Common.

9. Definitions.

(a) “2002 Note Agreement” means the Subordinated Note and Warrant Purchase Agreement, dated as of January 18, 2002, between the Company and The Northwestern Mutual Life Insurance Company, as amended.

(b) “2002 Warrant Shares” means (i) the shares of Class A Common Stock issuable or issued by the Company to The Northwestern Mutual Life Insurance Company upon exercise of the 2002 Warrants and (ii) any Class A Common Stock or other Common Stock issued, or issuable with respect to the securities referred to in clause (i) by way of a stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization. For purposes of this Agreement, a Person shall be deemed to be a holder of 2002 Warrant Shares, and such 2002 Warrant Shares shall be deemed to be in existence, whether or not such 2002 Warrant Shares have been actually acquired upon exercise of the Common Stock Purchase Warrant referred to in clause (i) of the preceding sentence, and such Person shall be entitled to exercise the rights of a holder of 2002 Warrant Shares hereunder.

(c) “2002 Warrants” means the warrants to acquire up to 1,133,328 shares of Class A Common Stock (subject to adjustment as provided in such warrants) issued pursuant to the 2002 Note Agreement.

(d) “ABRY” means ABRY Partners IV, L.P. and ABRY Investment Partnership, L.P., collectively.

(e) “ABRY Demand” has the meaning set forth in Paragraph 1(a).

(f) “ABRY Registrable Securities” means (i) any Class A Common Stock issued pursuant to the Recapitalization Agreement to ABRY, (ii) any Class A Common Stock or other Common Stock issued or issuable with respect to the securities referred to in clause (i) above by way of a stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization, and (iii) any other shares of Class A Common Stock or other Common Stock held by Persons holding securities described in clause (i) or (ii) above. As to any particular ABRY Registrable Securities, such securities shall cease to be ABRY Registrable Securities when (x) they have been distributed to the public pursuant to an offering registered under the Securities Act or sold to the public through a broker, dealer or market maker in compliance with Rule 144 under the Securities Act (or any similar rule then in force) or repurchased by the Company or any Subsidiary, (y) on the date when the holder of such ABRY Registrable Securities is able to sell all such securities in any three-month period without registration pursuant to Rule 144 under the Securities Act; provided that any security that ceases to be an ABRY Registrable Security by operation of this clause (y) will again be deemed to be an ABRY Registrable Security if a subsequent decrease in trading volume results in the holder

11

thereof not being able to sell such securities during such period without registration pursuant to Rule 144 under the Securities Act, or (z) on the date when the holder of such ABRY Registrable Securities is able to sell all such securities without registration pursuant to Rule 144(k) under the Securities Act (or when such holder would otherwise be able to sell all such securities as of such date without registration pursuant to Rule 144(k) under the Securities Act but for such holder being or having the right to designate a director of the Company or being part of a “group” (as such term is used in Section 13(d)(3) of the Securities Exchange Act) with a Person who is such a director or who has such a right). For purposes of this Agreement, a Person shall be deemed to be a holder of ABRY Registrable Securities, and such ABRY Registrable Securities shall be deemed to be in existence, whenever such Person has the right to acquire, directly or indirectly, such ABRY Registrable Securities (upon conversion or exercise in connection with a transfer of securities or otherwise, but disregarding any restrictions or limitations upon the exercise of such right), whether or not such acquisition has actually been effected, and such Person shall be entitled to exercise the rights of a holder of ABRY Registrable Securities hereunder.

(g) “Acquired Common” has the meaning set forth in Paragraph 8.

(h) “Affiliate” means with respect to any Person, a Person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such Person, and, in the case of an individual, includes any relative or spouse of such individual, or any relative or such spouse, who has the same home as such individual. The term “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

(i) “Agreement” has the meaning set forth in the Recitals.

(j) “Austin Ventures” means Austin Ventures III and Austin Ventures V, collectively.

(k) “Austin Ventures III” means Austin Ventures III-A, L.P. and Austin Ventures III-B, L.P., collectively.

(l) “Austin Ventures V” means Austin Ventures V, L.P. and Austin Ventures V Affiliates Fund, L.P., collectively.

(m) “Common Holders” has the meaning set forth in the Recitals.

(n) “Common Stock” means, collectively, the Company’s Class A Common Stock and Class B Common Stock, par value $.01 per share, and any capital stock of any class of the Company hereafter authorized that is not limited to a fixed sum or percentage of par or stated value in respect to the rights of the holders thereof to participate in dividends or in the distribution of assets upon any liquidation, dissolution or winding up of the Company.

(o) “Company” has the meaning set forth in the Recitals.

(p) “Company Registrable Securities” has the meaning set forth in Paragraph 4(c).

12

(q) “Demand Registrations” has the meaning set forth in Paragraph 1(a).

(r) “Fourth Amended and Restated Registration Agreement” has the meaning set forth in the Recitals.

(s) “Governmental Authority” means any Federal, state, local or foreign government, or other entity (including any governmental or quasi-governmental agency or authority) exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.

(t) “Heller” has the meaning set forth in the Recitals.

(u) “Heller Warrant” has the meaning set forth in the Recitals.

(v) “Heller Warrant Agreement” has the meaning set forth in the Recitals.

(w) “Hull Agreement” means the agreement, dated August 25, 2003, between the Company and James R. Hull.

(x) “Hull Partnership” means the Hull Family Limited Partnership, L.P.

(y) “Initial Public Offering” means the sale of shares of Common Stock in an underwritten initial public offering registered under the Securities Act (other than on Form S-8 or Form S-4 or any comparable forms) that has been filed under the Securities Act and declared effective by the Securities and Exchange Commission or any similar agency then having jurisdiction to enforce the Securities Act, other than a sale of Common Stock issued together with preferred stock or indebtedness of the Company or any of its Subsidiaries.

(z) “Initiating Holders” has the meaning set forth in Paragraph 1(a).

(aa) “Long-Form Registrations” has the meaning set forth in Paragraph 1(a).

(bb) “Majority Demand” has the meaning set forth in Paragraph 1(a).

(cc) “NASD” means National Association of Securities Dealers.

(dd) “Old Preferred Stock” has the meaning set forth in the Recitals.

(ee) “Old Series A” has the meaning set forth in the Recitals.

(ff) “Old Series B” has the meaning set forth in the Recitals.

(gg) “Old Series C” has the meaning set forth in the Recitals.

(hh) “Other Securities” has the meaning set forth in Paragraph 1(d).

(ii) “Person” means an individual, a partnership, a corporation, an association, a joint stock company, a trust, a joint venture, a limited liability company, an unincorporated organization or other similar entity or organization or a Governmental Authority.

13

(jj) “Piggyback Registration” has the meaning set forth in Paragraph 2(a).

(kk) “Recapitalization” has the meaning set forth in the Recitals.

(ll) “Recapitalization Agreement” has the meaning set forth in the Recitals.

(mm) “Registrable Securities” means (i) any Class A Common Stock issued (A) pursuant to the Recapitalization Agreement or (B) upon conversion of the Series A Preferred Stock, (ii) the 2002 Warrant Shares, (iii) any Class B Common Stock issued upon exercise of the Heller Warrant Agreement, (iv) any Class A Common Stock, Class B Common Stock, or other Common Stock issued, or issuable with respect to, the securities referred to in clause (i), (ii) or (iii) above by way of a stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization, and (v) any other shares of Class A Common Stock or other Common Stock held by Persons holding securities described in clause (i) or (ii) above. As to any particular Registrable Securities, such securities shall cease to be Registrable Securities when (x) they have been distributed to the public pursuant to a offering registered under the Securities Act or sold to the public through a broker, dealer or market maker in compliance with Rule 144 under the Securities Act (or any similar rule then in force) or repurchased by the Company or any Subsidiary, (y) in the case of Registrable Securities other than 2002 Warrant Shares, on the date when the holder of such Registrable Securities is able to sell all such securities in any three-month period without registration pursuant to Rule 144 under the Securities Act; provided that any security that ceases to be a Registrable Security by operation of this clause (y) will again be deemed to be a Registrable Security if a subsequent decrease in trading volume results in the holder thereof not being able to sell such securities during such period without registration pursuant to Rule 144 under the Securities Act, or (z) in the case of Registrable Securities other than 2002 Warrant Shares, on the date when the holder of such Registrable Securities is able to sell all such securities without registration pursuant to Rule 144(k) under the Securities Act (or when such holder would otherwise be able to sell all such securities as of such date without registration pursuant to Rule 144(k) under the Securities Act but for such holder being or having the right to designate a director of the Company or being part of a “group” (as such term is used in Section 13(d)(3) of the Securities Exchange Act) with a Person who is such a director or who has such a right). For purposes of this Agreement, a Person shall be deemed to be a holder of Registrable Securities, and such Registrable Securities shall be deemed to be in existence, whenever such Person has the right to acquire, directly or indirectly, such Registrable Securities (upon conversion or exercise in connection with a transfer of securities or otherwise, but disregarding any restrictions or limitations upon the exercise of such right), whether or not such acquisition has actually been effected, and such Person shall be entitled to exercise the rights of a holder of Registrable Securities hereunder.

(nn) “Registration Expenses” has the meaning set forth in Paragraph 5(a).

(oo) “Rule 144A Information” has the meaning set forth in Paragraph 10(p).

(pp) “Securities Act” means the Securities Act of 1933, as amended and in effect from time to time.

14

(qq) “Securities Exchange Act” means the Securities Exchange Act of 1934, as amended and in effect from time to time.

(rr) “Shareholders Agreement” has the meaning set forth in the Recitals.

(ss) “Short-Form Registrations” has the meaning set forth in Paragraph 1(a).

(tt) “Transfer Period” has the meaning set forth in Paragraph 1(a).

(uu) “Warrant Demand” has the meaning set forth in Paragraph 1(a).

(vv) “Warrant Holders” has the meaning set forth in the Recitals.

10. Miscellaneous.

(a) No Inconsistent Agreements. The Company shall not hereafter enter into any agreement with respect to Company securities that is inconsistent with or violates the rights granted to the holders of Registrable Securities in this Agreement except as permitted pursuant to Paragraph 1(g).

(b) Adjustments Affecting Registrable Securities. The Company shall not take any action, or permit any change to occur, with respect to Company securities that would materially and adversely affect the ability of the holders of Registrable Securities to include such Registrable Securities in a registration undertaken pursuant to this Agreement or that would materially and adversely affect the marketability of such Registrable Securities in any such registration (including, without limitation, effecting a stock split or a combination of shares).

(c) Remedies. Any Person having rights under any provision of this Agreement shall be entitled to enforce such rights specifically, to recover damages caused by reason of any breach of any provision of this Agreement and to exercise all other rights granted by law. The parties hereto agree and acknowledge that money damages would not be an adequate remedy for any breach of the provisions of this Agreement and that, in addition to any and all other rights and remedies existing in its favor, any party shall be entitled to specific performance and/or other injunctive relief from any court of law or equity of competent jurisdiction (without posting any bond or other security) in order to enforce or prevent violation of the provisions of this Agreement.

(d) Amendments and Waivers. The provisions of this Agreement may be amended or waived only upon the prior written consent of the Company and holders of a majority of the Registrable Securities, so long as, during any period that does not constitute a Transfer Period, such holders include holders of a majority of the ABRY Registrable Securities; provided that in the event that the effect of such amendment or waiver is to treat a holder or a group of holders of Registrable Securities materially and adversely as compared with its effect on any similarly situated holder or group of holders of Registrable Securities, then such amendment or waiver will also require the consent of such holder of Registrable Securities, or the holders of a majority of the Registrable Securities held by such group of holders of Registrable Securities, so materially and adversely treated; provided further that Paragraph 2 hereof may not be amended to eliminate the Piggyback Registration rights without the consent of

15

holders of at least 66 2/3% of the Registrable Securities (the “Supermajority Consent”); provided further that any amendment or waiver that adversely affects the rights or interests of any holder or holders of the 2002 Warrants or the 2002 Warrant Shares shall also require the written consent of the holders of at least 66 ²/3% of the 2002 Warrant Shares. Notwithstanding anything to the contrary herein (but subject to the initial proviso to the preceding sentence), the Supermajority Consent shall not be required in order for the Company to eliminate Piggyback Registration rights with respect to any particular offering that is solely a primary offering or to amend or alter the priorities set forth in Sections 2(c) or (d) hereof. The failure of any party to enforce any of the provisions of this Agreement shall in no way be construed as a waiver of such provisions and shall not affect the right of such party thereafter to enforce each and every provision of this Agreement in accordance with its terms.

(e) Termination This Agreement will terminate with respect to The Northwestern Mutual Life Insurance Company on the date on which The Northwestern Mutual Life Insurance Company owns less than 1% of the Common Stock on a fully diluted basis, except that Paragraph 6 and Paragraph 10(p) of this Agreement shall continue in effect for so long as any 2002 Warrant Shares remain outstanding.

(f) Successors and Assigns. All covenants and agreements in this Agreement by, or on behalf of, any of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto, whether so expressed or not. In addition, whether or not any express assignment has been made, the provisions of this Agreement that are for the benefit of purchasers or holders of Registrable Securities are also for the benefit of, and enforceable by, any subsequent holder of such Registrable Securities.

(g) Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement.

(h) Counterparts. This Agreement may be executed in two or more counterparts, any one of which need not contain the signatures of more than one party, but all such counterparts taken together shall constitute one and the same Agreement.

(i) Interpretation. The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement. Whenever required by the context, any pronoun used in this Agreement will include the corresponding masculine, feminine or neuter forms, and the singular forms of nouns, pronouns, and verbs will include the plural and vice versa. Reference to any agreement, document, or instrument means such agreement, document, or instrument as amended or otherwise modified from time to time in accordance with the terms of such agreement, document or instrument, and if applicable, of this Agreement. The use of the words “include” or “including” in this Agreement will be by way of example rather than by limitation. The use of the words “or,” “either” or “any” will not be exclusive. The parties to this Agreement have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement will be construed as if drafted jointly by the parties to this Agreement, and no

16

presumption or burden of proof will arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement.

(j) Governing Law. The construction, validity, interpretation and enforcement of this Agreement and the exhibits and schedules hereto shall be governed by, and construed in accordance with, the laws of the State of Texas, without giving effect to any choice of law or conflict of law rules or provisions (whether of the State of Texas or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Texas.

(k) Notices. All notices referred to herein will be in writing and will be personally delivered, delivered by facsimile or courier service, or mailed, certified with first class postage prepaid, to the address set forth below. Each such notice, request, demand, or other communication shall be deemed to have been given and received on the date of actual delivery thereof, if personally delivered or delivered by facsimile transmission (if receipt is confirmed at the time of such transmission by telephone), or on the third day following the date of mailing, if mailed in accordance with this Paragraph, or on the day specified for delivery to the courier service (if such day is one on which the courier service will give normal assurances that such specified delivery will be made). Any notice, request, demand, or other communication given otherwise than in accordance with this Paragraph shall be deemed to have been given on the date actually received. Any Person may change its address for purposes of this Paragraph by giving written notice of such change to the corporation in the manner herein above provided. Whenever any notice is required to be given by law or by this Agreement, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of notice.

To the Company:	Monitronics International, Inc. 12801 Stemmons Freeway Suite 821 Dallas, TX 75234 Facsimile: (972) 919-1985 Attn: James R. Hull
With copies to:	Vinson & Elkins L.L.P. 2001 Ross Avenue Suite 3700 Dallas, TX 75201 Facsimile: (214) 999-7714 Attn: Christine A. Hathaway
	and
	Kirkland & Ellis LLP 153 East 53rd Street New York, NY 10022 Facsimile: (212) 446-4900 Attn: John L. Kuehn

17

To holders of Common Stock to their addresses set forth on the Schedule of Holders of Common Stock,

With a copy to:	If to Austin Ventures: Jenkens & Gilchrist, A Professional Corporation 1445 Ross Avenue Suite 3200 Dallas, TX 75202-2799 Facsimile: (214) 855-4300 Attn: Gregory J. Schmitt
	and
	If to ABRY: Kirkland & Ellis LLP 153 East 53rd Street New York, NY 10022 Facsimile: (212) 446-4900 Attn: John L. Kuehn
	If to New York Life Capital Partners II, L.P.: New York Life Investment Management, LLC 51 Madison Avenue Room 1104 New York, NY 10010 Facsimile: (212) 576-8340 Attn: Office of General Counsel
	and
	Arnold & Porter 399 Park Avenue New York, NY 10022-4690 Facsimile: (212) 715-1399 Attn: Christine D. Rogers, Esq.

18

and

If to PPM:

America Private Equity Fund L.P.

225 W. Wacker Drive, Suite 1100

Chicago, IL 60606

Facsimile: (312) 634-0044

Attn: Bruce Saewitz

and

Kirkland & Ellis LLP

200 East Randolph Drive

Chicago, IL 60601

Facsimile: (312) 861-2200

Attn: John A. Weissenbach

and

If to Capital Resource Lenders II, L.P.:

Testa, Hurwitz & Thibeault, LLP

125 High Street

Boston, MA 02110

Facsimile: (617) 248-7100

Attn: Andrew E. Taylor, Jr.

and

If to The Northwestern Mutual Life Insurance Company:

Schiff Hardin & Waite

6600 Sears Tower

Chicago, IL 60606

Facsimile: (312) 258-5600

Attn: Andrew A. Kling

or to such other address or to the attention of such other Person as the recipient party has specified by prior written notice to the sending party.

(l) Waiver of Jury Trial. EACH PARTY TO THIS AGREEMENT HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION, OR CAUSE OF ACTION (I) ARISING UNDER THIS AGREEMENT OR (II) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS RELATED HERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY, OR OTHERWISE. EACH PARTY TO THIS AGREEMENT

19

HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION, OR CAUSE OF ACTION WILL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT THE PARTIES TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.

(m) Transfer. Prior to transferring any shares of Common Stock (other than a transfer pursuant to which such shares of Common Stock cease to be Registrable Securities) to any Person, the Person transferring such shares will cause the prospective transferee to execute and deliver to the Company (for itself and as the agent of the other Stockholders), a counterpart to this Agreement pursuant to which the prospective transferee agrees to be bound by this Agreement to the same extent as the Person transferring such shares of Common Stock with respect to the shares of Common Stock so transferred.

(n) Entire Agreement. Except as otherwise expressly set forth in this Agreement, this Agreement and the other agreements referred to in this Agreement embodies the complete agreement and understanding among the parties to this Agreement with respect to the subject matter of this Agreement and supersedes and preempts any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter of this Agreement in any way.

(o) Further Assurances. Each party to this Agreement hereby covenants and agrees, without the necessity of any further consideration, to execute and deliver any and all such further documents and take any and all such other actions as may be necessary or appropriate to carry out the intent and purposes of this Agreement and to consummate the transactions contemplated herein.

(p) Reporting. When it is first legally required to do so, the Company shall register its Common Stock under Section 12 of the Securities Exchange Act and shall keep effective such registration and timely file such information, documents and reports as the Commission may require or prescribe under Section 13 of the Securities Exchange Act. From and after the effective date of the first registration statement filed by the Company under the Securities Act, the Company shall (whether or not it shall then be required to do so) timely file such information, documents and reports that a corporation, partnership or other entity subject to Section 13 or 15(d) (whichever is applicable) of the Securities Exchange Act is required to file. Immediately upon becoming subject to the reporting requirements of either Section 13 or 15(d) of the Securities Exchange Act, the Company shall promptly upon request furnish any holder of Common Stock or 2002 Warrant Shares (i) a written statement by the Company that it has complied with such reporting requirements, (ii) a copy of the most recent annual or quarterly report of the Company, and (iii) such other reports and documents filed by the Company with the Securities and Exchange Commission as such holder may reasonably request in availing itself of an exemption for the sale of Registrable Shares without registration under the Securities Act. The Company acknowledges and agrees that the purposes of the requirements contained in this Paragraph 10(p) are to enable any such holder to comply with the current public information requirement contained in paragraph (c) of Rule 144 under the Securities Act, should such holder ever wish to dispose of any Company Securities acquired by it without registration under the

20

Securities Act in reliance upon Rule 144 under the Securities Act (or any other similar exemptive provision), and to qualify the Company for the use of registration statements on Form S-3. In addition, the Company shall take such other measures and file such other information, documents and reports, as shall hereafter be required by the Securities and Exchange Commission as a condition to the availability of Rule 144 under the Securities Act (or any similar exemptive provision hereafter in effect) and the use of Form S-3. The Company also covenants to use its reasonable best efforts, to the extent that it is reasonably within its power to do so, to qualify for the use of Form S-3.

(q) Rule 144A Information. The Company shall, at all times during which it is neither subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act, nor exempt from reporting pursuant to Rule 12g3-2(b) under the Securities Exchange Act, upon the written request of any holder of Common Stock or Series A Preferred Stock if a Dividend Election (as defined in the Shareholders Agreement) has not been made, provide in writing to such holder and to any prospective transferee of any Company securities of such Purchaser the information concerning the Company described in Rule 144A(d)(4) under the Securities Act (“Rule 144A Information”). Upon the written request of any holder of Common Stock or Series A Preferred Stock if a Dividend Election has not been made, the Company shall cooperate with and assist such holder or any member of the National Association of Securities Dealers, Inc. PORTAL system in applying to designate and thereafter maintain the eligibility of the Company Securities for trading through PORTAL. The Company’s obligations under this Paragraph 10(q) shall at all times be contingent upon receipt from the prospective transferee of Company Securities of a written agreement to take all reasonable precautions to safeguard the Rule 144A Information from disclosure to anyone other than Persons who will assist such transferee in evaluating the purchase of any Company Securities.

[Remainder of Page Intentionally Left Blank]

21

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

COMPANY:
MONITRONICS INTERNATIONAL, INC.
By:	/s/ JAMES R. HULL
	James R. Hull,
	President
COMMON HOLDERS:
AUSTIN VENTURES III-A, L.P.
By:	AV Partners III, L.P.,
	Its General Partner
By:	/s/ BLAINE F. WESNER
	Blaine F. Wesner,
	Authorized Signatory
AUSTIN VENTURES III-B, L.P.
By:	AV Partners III, L.P.,
	Its General Partner
By:	/s/ BLAINE F. WESNER
	Blaine F. Wesner,
	Authorized Signatory
AUSTIN VENTURES V, L.P.
By:	AV Partners V, L.P.,
	Its General Partner
By:	/s/ BLAINE F. WESNER
	Blaine F. Wesner,
	General Partner

AUSTIN VENTURES V AFFILIATES FUND, L.P.
By:	AV Partners V, L.P.,
	Its General Partner
By:	/s/ BLAINE F. WESNER
	Blaine F. Wesner,
	General Partner
CAPITAL RESOURCE LENDERS II, L.P.
By:	Capital Resource Partners II, L.P.,
	Its General Partner
By:	/s/ ROBERT C. AMMERMAN
	General Partner
ABRY PARTNERS IV, L.P.
By:	ABRY Capital Partners, L.P.,
	Its General Partner
By:	ABRY Capital Partners, LLC,
	Its General Partner
By:	/s/ JAY M. GROSSMAN
	Name: Jay M. Grossman
	Title:
ABRY INVESTMENT PARTNERSHIP, L.P.
By:	ABRY Investment GP, LLC,
	Its General Partner
By:	/s/ JAY M. GROSSMAN
	Name:
NEW YORK LIFE CAPITAL PARTNERS II, L.P.
By: NYLCAP Managers LLC
Its:  Investment Manager
By:	/s/ JOHN E. SCHUMACHER
	Name: John E. Schumacher
	Title: President and CEO

PPM AMERICA PRIVATE EQUITY FUND LP By: PPM America Capital Partners, LLC Its: General Partner
	By:	/s/ BRUCE SAEWITZ
		Name: Bruce E. Saewitz
		Title: Senior Partner
By:		/s/ AUSTIN KRUMPFES
		Name: Austin Krumpfes
		Title: Associate
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
By:		/s/ DAVID A. BARRAS
		Name: David A. Barras
		Title: Authorized Representative

Schedule of Common Holders

1. Austin Ventures III-A, L.P.

Austin Ventures III-B, L.P.

Austin Ventures V, L.P.

Austin Ventures V Affiliates Fund, L.P.

300 West 6^th Street

Suite 2300

Austin, TX 78701

Facsimile: (512) 476-3952

Attn: Blaine F. Wesner

2. Capital Resource Lenders II, L.P.

c/o Capital Resource Partners

85 Merrimac Street

Suite 200

Boston, MA 02114

Facsimile: (617) 723-9819

Attn: Stephen M. Jenks

3. ABRY Partners IV, L.P.

ABRY Investment Partnership, L.P.

18 Newbury Street

Boston, MA 02116

Facsimile: (617) 859-7205

Attn: Jay Grossman

4. New York Life Capital Partners II, L.P.

51 Madison Avenue

Suite 3009 (30^th Floor)

New York, NY 10010

Facsimile: (212) 576-5591

Attn: John Schumacher

5. PPM America Private Equity Fund LP

c/o PPM America Capital Partners, LLC

225 W. Wacker Drive

Suite 1200

Chicago, IL 60606

Facsimile: (312) 634-0044

Attn: Bruce Saewitz

6. The Northwestern Mutual Life Insurance Company

720 East Wisconsin Avenue

Milwaukee, Wisconsin 53202

Facsimile: (414) 665-7124

Attn: Securities Department

EXHIBIT A

REGISTRATION AGREEMENT

Joinder

The undersigned is executing and delivering this Joinder pursuant to the Registration Agreement dated as of                              (as the same may hereafter be amended, the “Registration Agreement”), among Monitronics International, Inc., a Texas corporation (the “Company”) and the other persons named as parties therein.

By executing and delivering this Joinder to the Company, the undersigned hereby agrees to become a party to, to be bound by, and to comply with the provisions of the Registration Agreement as a holder of [ABRY Registrable Securities and ]Registrable Securities in the same manner as if the undersigned were an original signatory to the Registration Agreement, and the undersigned’s              shares of [Class A Common Stock] shall be included as [ABRY Registrable Securities and ]Registrable Securities under the Registration Agreement.

Accordingly, the undersigned has executed and delivered this Joinder as of the              day of                     , 200  .

Signature of Shareholder

Print Name of Shareholder

EX-10.16

Exhibit 10.16

FIFTH AMENDED AND RESTATED

SHAREHOLDERS AGREEMENT

Dated as of July 14, 2004

Among

Monitronics International, Inc.

and

The Shareholders

of

Monitronics International, Inc. Referred to Herein

TABLE OF CONTENTS

1.	Voting Provisions		2
	1A.	Composition of Board of Directors	2
	1B.	Compensation Committee	2
	1C.	Vacancies, Removal	3
	1D.	Meetings; Observer Rights	3
	1E.	Expenses	4
	1F.	Indemnification Agreements	4
	1G.	Special Voting Rights of Holders of Austin Ventures Recapitalization Stock	4
	1H.	Sole Remedy	7
	1I.	Irrevocable Proxy	7
2.	Provisions Relating to Transfers of Company Securities		7
	2A.	General Restrictions on Transfers	7
	2B.	Right of First Refusal	8
	2C.	Contractual Preemptive Rights	9
	2D.	Transferees and Future Holders of Capital Stock	11
	2E.	Co-Sale Right	11
3.	Liquidity Rights		12
	3A.	Sale of the Company	12
	3B.	Sale Procedure	13
	3C.	Cessation of Sale Procedure	14
	3D.	Accepted Sale Proposals	14
	3E.	Best Efforts	14
	3F.	Initial Public Offering	15
4.	Definitions		15
5.	Confidential Information		21
6.	General Provisions		22
	6A.	Transfer Conditions	22
	6B.	Legends on Certificates	22
	6C.	Termination; Amendment and Waiver	23
	6D.	Notices	24
	6E.	Governing Law	27
	6F.	Entire Agreement	27
	6G.	Further Assurances	27
	6H.	Counterparts	27
	6I.	Reorganization; Certain Restrictions on Application	27
	6J.	Descriptive Headings	27
	6K.	Severability	27
	6L.	Binding Effect	27

6M.	Exception for Pledge	28
6N.	Termination of the Third Amended and Restated Co Sale Agreement	28
6O.	Amendment of Prior Agreement	28
6P.	Interpretation	29

ii

FIFTH AMENDED AND RESTATED

SHAREHOLDERS AGREEMENT

This Fifth Amended and Restated Shareholders Agreement (the “Agreement”) is entered into as of July 14, 2004 by and among Monitronics International, Inc., a Texas corporation (the “Company”), the holders of Common Stock of the Company listed on the Schedule of Common Shareholders attached hereto (the “Common Shareholders”), the holders of warrants listed on the Schedule of Warrant Holders attached hereto (the “Warrant Holders”), and the holders of the Series A Preferred Stock of the Company listed on the Schedule of Preferred Shareholders attached hereto (the “Preferred Shareholders” and, together with the Common Shareholders, the Warrant Holders and such other parties as may from time to time become parties hereto the “Shareholders”).

Recitals

The Company, the holders of the Company’s Series A Preferred Stock, $0.01 par value per share (the “Old Series A”), Series B Preferred Stock, $0.01 par value per share (the “Old Series B”), Series C Preferred Stock, $0.01 par value per share, Series C-1 Preferred Stock, $0.01 par value per share (collectively, the “Old Series C”), and Series D-1 Preferred Stock, $0.01 par value per share (collectively, all such preferred stock of the Company, the “Old Preferred Stock”) and certain holders of warrants to purchase Common Stock of the Company (the “Exercising Warrantholders”) have entered into the Recapitalization Agreement dated as of the date hereof (the “Recapitalization Agreement”) pursuant to which (a) certain holders of Old Preferred Stock (other than certain holders of Old Series C) shall exchange all of their shares of Old Preferred Stock held by such holders for shares of Class A Common Stock, (b) certain holders of Old Series A and Old Series B shall exchange all of their shares of Old Series A and Old Series B for shares of new Series A Preferred Stock, (c) the Exercising Warrant Holders shall exercise their warrants for (i) shares of Class A Common Stock, in the case of Capital Resource Lenders II, L.P. (“CRL”), and (ii) shares of new Series A Preferred Stock, in the case of Austin Ventures, and (d) the Company shall redeem shares of Old Series C from certain holders of Old Series C; and the new investors listed on the Schedule of Common Shareholders as New Investors (the “New Investors”) are purchasing shares of Class A Common Stock from certain holders of Class A Common Stock who received such shares of Class A Common Stock pursuant to the exchange described in subsection (a) of this Paragraph in accordance with the Stock Purchase Agreement, dated as of the date hereof, among the Company, certain holders of Class A Common Stock and the New Investors following the transactions contemplated by the Recapitalization Agreement (the “Recapitalization”).

The Company, the Warrant Holders named therein, certain of the Common Shareholders and the holders of Old Preferred Stock named therein are parties to a Fourth Amended and Restated Shareholders Agreement, dated as of January 18, 2002 (the “Prior Agreement”).

The parties hereto desire to amend and restate and supercede and replace the Prior Agreement in its entirety in order to facilitate the transactions contemplated by the Recapitalization Agreement.

In addition, the parties hereto desire to terminate the Third Amended and Restated Co Sale Agreement, dated as of January 18, 2002 (the “Co Sale Agreement”), and to incorporate the applicable terms and conditions of such agreement in this Agreement in order to facilitate the

transactions contemplated by the Recapitalization Agreement, and the parties hereto agree that the Co Sale Agreement is hereby terminated.

Capitalized terms not defined elsewhere herein shall have the respective meanings assigned to them in Part 4 of this Agreement.

The parties hereto agree that the Prior Agreement shall be amended and restated in its entirety by this Agreement, and the parties further agree as follows:

1. Voting Provisions.

1A. Composition of Board of Directors. The Shareholders agree that in any election of directors of the Company they shall vote or act by written consent, as the case may be, all shares of capital stock of the Company now or hereafter owned or controlled by them, including all shares that they are entitled to vote under any voting trust, voting agreement or proxy, to elect a Board of Directors comprised of not fewer than seven directors (or not fewer than six directors when Hull (as defined) is no longer employed by the Company as described in subsection (c) below) designated as follows:

(a) a majority of the directors (each an “ABRY Director” and collectively, the “ABRY Directors”) shall be designated by ABRY for so long as ABRY holds at least 10% of the number of shares of Common Stock that ABRY holds on the date hereof (as appropriately and equitably adjusted for stock splits, stock combinations and the like);

(b) one director (the “AV Director” and, together with the ABRY Directors, the “Purchaser Directors”) shall be designated by Austin Ventures for so long as Austin Ventures holds an aggregate of at least 10% of the number of shares of Recapitalization Common Stock and/or Series A Preferred Stock that Austin Ventures holds on the date hereof (as appropriately and equitably adjusted for stock splits, stock combinations and the like);

(c) one director (the “President Director”) shall be James R. Hull (“Hull”), for so long as Hull is employed by the Company; and

(d) one director (the “CEO Director”) shall be the individual, if any, who is the Chief Executive Officer of the Company from time to time, for so long as such individual is employed by the Company in the position of Chief Executive Officer.

The initial ABRY Directors shall be Jay Grossman, Erik Brooks, Royce Yudkoff, and Brent Stone, and the initial AV Director shall be Blaine Wesner. The obligation to vote shares in accordance with this Paragraph 1A shall be specifically applicable to and enforceable against any transferees of the parties hereto.

1B. Compensation Committee. The Board of Directors shall establish and maintain a compensation committee comprised of two or more of the ABRY Directors (as ABRY may designate from time to time), the AV Director and Hull (so long as he is a director) and such other members as the Board of Directors may designate from time to time. The compensation committee of the Board of Directors will review and make recommendations to the Board of Directors regarding salaries, bonuses and other compensation and benefits of officers and key employees of the Company and its Subsidiaries, and will administer any Approved Plan and any other stock option, incentive or compensation plans or arrangements.

2

1C. Vacancies, Removal. In the event of any vacancy in the Board of Directors, the Shareholders agree to vote all shares of capital stock owned or controlled by them and to otherwise use their best efforts to fill such vacancy so that the Board of Directors of the Company will be comprised of directors designated as provided in Paragraph 1A of this Agreement. The Shareholders agree to vote all shares of capital stock owned or controlled by them for the removal of (a) any director whenever (but only whenever) there shall be presented to the Board of Directors the written direction that such director be removed, signed by the party entitled to designate such director pursuant to Paragraph 1A of this Agreement, (b) Hull, as the President Director, whenever (but only whenever) Hull is no longer employed by the Company, and (c) any CEO Director, whenever (but only whenever) the individual serving as the CEO Director is no longer the Chief Executive Officer of the Company. Each of the parties agrees to use its best efforts to cause designees to be elected to the Board of Directors as provided in Paragraph 1A of this Agreement.

1D. Meetings; Observer Rights.

The Company agrees to hold meetings of the Board of Directors at least once quarterly commencing with the quarter beginning on April 1, 2004. Each of New York Life Capital Partners II, L.P. (“NYLife”) (so long as ABRY has the right to designate ABRY Directors), PPM America Private Equity Fund LP (“PPM”) (so long as ABRY has the right to designate the ABRY Directors), CRL (so long as ABRY has the right to designate the ABRY Directors) and the holders of a majority of the 2002 Warrant Shares (so long as any 2002 Warrant Shares remain outstanding) shall have the right to designate or remove a representative (an “Observer”) who shall have the right to (a) receive written notice at least one week (or 72 hours, in the case of a telephone meeting) in advance of all meetings of the Board of Directors and all meetings of committees of the Board of Directors (provided that no failure or delay in the giving of such notice will affect the validity of notice of any such meeting to the members of the Board of Directors or such committee or any action taken at such meeting) and (b) attend, as a non-voting observer, meetings of the Board of Directors and all meetings of committees of the Board of Directors. If a Purchaser Director designated pursuant to Paragraph 1A of this Agreement is not able to attend a Board of Directors meeting or a meeting of a committee on which he serves, the Person(s) entitled to designate such Purchaser Director may also designate any one individual to attend as an Observer. Any Observer described in either of the two preceding sentences may be excluded from any meeting, and materials described in this Paragraph 1D may be withheld from any such Observer, to the extent necessary to preserve any evidentiary privilege. The Company shall furnish each Observer with a copy of the minutes and other records of all meetings and other actions taken by the Board of Directors and its committees and all board packages and the written material given to directors in connection with such meeting at the same time such materials and information are given to the directors. If the Company proposes to take any action by written consent in lieu of a meeting of its Board of Directors or any committee thereof, the Company shall give written notice thereof to each Observer prior to the effective date of such consent describing in reasonable detail the nature and substance of such action (provided that no failure or delay in the giving of such notice will affect the validity of any action taken by the Board of Directors of the Company (or committee thereof) by written consent in lieu of a meeting).

3

1E. Expenses. The Company shall reimburse all individuals serving as directors and each Observer designated pursuant to Paragraph 1D for their actual and reasonable out-of-pocket expenses incurred in attending meetings of the Board of Directors and all committees thereof and otherwise incurred in fulfilling their duties as directors. If a Shareholder is entitled to but has not designated a Purchaser Director or if a Purchaser Director designated pursuant to Paragraph 1A of this Agreement is unable to attend a meeting of the Board of Directors or a committee on which he serves, the Company shall reimburse one representative of the Person(s) entitled to designate such Purchaser Director for actual and reasonable out-of-pocket expenses incurred in attending meetings of the Board of Directors and such committees.

1F. Indemnification Agreements. On the date hereof and on each later date that a Purchaser Director or any other director is first elected or appointed to the Board of Directors, the Company shall enter into an indemnification agreement in substantially the form attached hereto as Exhibit A with each Purchaser Director and each other director of the Company who is elected or appointed to the Board of Directors on such date.

1G. Special Voting Rights of Holders of Austin Ventures Recapitalization Stock. In addition to any action otherwise required by the Articles of Incorporation or applicable law, prior to the Dividend Election Date, the Company shall not take any of the following actions without the prior authorization and approval of the holders of a majority of the Austin Ventures Recapitalization Stock:

(a) change the nature of the business or operations of the Company or any of its Subsidiaries or Control Affiliates or enter into or allow any of its Subsidiaries or Control Affiliates to enter into a line of business other than the purchase of security alarm and other monitoring contracts, the sale, servicing, installation and/or monitoring of security alarms and other monitoring systems, and ancillary businesses acquired by the Company or any Subsidiary or Control Affiliate that do not constitute more than 5% of Revenues, Assets or EBITDA (LQA), as determined on any Measurement Date;

(b) authorize or issue, or obligate itself to issue, any Company Security (including any Company Security convertible into or exercisable or exchangeable for any Company Security) that would rank senior to, or pari passu with, the Series A Preferred Stock as to dividend or redemption rights or liquidation preferences, or issue or obligate itself to issue, or allow any of its Subsidiaries to issue or obligate itself to issue, any Triggering Funded Debt, unless: (i) in the case of any such Company Securities only, such Company Securities are issued at no less than Fair Market Value, (ii) such Company Securities or Triggering Funded Debt is issued for cash (provided, however, that such Company Securities may be issued as non-cash consideration for the acquisition of assets or Equity Securities of another Person, so long as such acquisition or issuance of Company Securities does not result in a breach of any other provision of this Agreement), (iii) no Company Securities outstanding immediately after the Recapitalization are converted into or exchanged for such Company Securities or Triggering Funded Debt, (iv) such Company Securities or Triggering Funded Debt, as the case may be, do not contain terms and conditions that prohibit the exercise of the rights of Austin Ventures or the holders of Series A Preferred Stock pursuant to Part 1 or Part 3 hereof, and (v) after such issuance and the application of the proceeds of such issuance, either (A) the Debt Amount does not exceed the product of the Permitted Leverage Multiple multiplied by EBITDA (LQA) or (B)

4

as a result of such issuance (after giving effect to the application of the proceeds thereof), the Leverage Multiple does not increase (all Company Securities issued in compliance with this subparagraph 1G(b) being the “Permitted Senior Securities”);

(c) issue, or obligate itself to issue, any Series A Preferred Stock, other than to holders of Series A Preferred Stock outstanding immediately after the Recapitalization and their permitted transferees;

(d) redeem, purchase or otherwise acquire (or pay into or set aside for a sinking fund for such purpose), or allow any of its Subsidiaries or Control Affiliates to redeem, purchase or otherwise acquire, any Company Security (including any Company Security convertible into or exercisable or exchangeable for any Company Security), that ranks junior to the Series A Preferred Stock as to dividend, redemption rights or liquidation preferences, or that is pari passu with or senior to the Series A Preferred Stock as to dividend, redemption rights or liquidation preferences and that is not a Permitted Senior Security, excluding in each case (i) redemptions, repurchases or other acquisitions of Company Securities issued to employees of the Company or its Subsidiaries or the Hull Partnership that are required under arrangements in effect at the time of the Recapitalization, and (ii) additional redemptions, repurchases or other acquisitions of Company Securities issued to employees of the Company and its Subsidiaries (provided that the aggregate amount of all such redemptions described in this clause (ii) does not exceed $7.5 million);

(e) declare or pay a dividend or distribution of any kind on any Company Securities that rank junior to the Series A Preferred Stock as to dividend or redemption rights or liquidation preferences, or that are pari passu with or senior to the Series A Preferred Stock as to dividend, redemption rights or liquidation preferences and that are not Permitted Senior Securities;

(f) other than provisions in the definitive documentation relating to any Funded Debt or Permitted Senior Securities or the terms of such Funded Debt or Permitted Senior Securities themselves (which shall not, in either case, prohibit Austin Ventures or the holders of Series A Preferred Stock from exercising their rights under Part 1 or Part 3 hereunder), enter into, or allow any of its Subsidiaries or Control Affiliates to enter into, any financing transaction, agreement to issue Company Securities or other arrangement with terms and conditions that would prohibit the Company from performing its obligations in respect of the Series A Preferred Stock;

(g) enter into, or allow any of its Subsidiaries or Control Affiliates to enter into, any financing transaction, agreement to issue Company Securities or other arrangement with terms and conditions that would prohibit the exercise of the rights of Austin Ventures or the holders of Series A Preferred Stock pursuant to Part 1 or Part 3 hereof;

(h) acquire, or permit any Subsidiary or Control Affiliate to acquire, any Equity Securities or other interest in any Person or business (whether by a purchase of assets, purchase of Equity Securities, merger or otherwise), or enter into any joint venture, in either case involving aggregate consideration payable by the Company and its Subsidiaries and Control Affiliates (including, without limitation, the assumption by one or more of them of

5

liabilities whether direct or indirect) exceeding $100,000,000 in any one transaction (or series of related transactions); provided, however, that this subparagraph (h) shall not preclude the purchase of security alarm contracts in the ordinary course of business;

(i) make any amendment to the Articles of Incorporation or the Company’s bylaws, or file any resolution of the Board of Directors with the Texas Secretary of State, containing any provisions which would (i) increase the number of authorized shares of the Series A Preferred Stock or (ii) adversely affect or otherwise impair the rights or the relative preferences and priorities of the holders of the Series A Preferred Stock under, the Articles of Incorporation or the Company’s bylaws, other than any such amendment or resolution to establish or amend the terms of Permitted Senior Securities that does not otherwise violate any of the terms of this Agreement;

(j) enter into, amend, modify or supplement, or permit any Subsidiary or Control Affiliate to enter into, amend, modify or supplement, any agreement, transaction, commitment or arrangement (including, without limitation, any agreement, transaction, commitment or arrangement whereby any fees or other consideration would be paid) with any of its or any such Subsidiary’s or Control Affiliate’s officers, directors, employees, stockholders or Affiliates or with any individual related by blood, marriage or adoption to any such individual or with any entity in which any such Person owns a beneficial interest, except for (i) customary employment arrangements and benefit programs on reasonable terms (provided, however, that no such arrangements or programs shall be with ABRY or any Affiliate of ABRY), (ii) financing arrangements with any such Persons if (a) such financing results in the issuance of Company Securities or securities of any Subsidiary or Control Affiliate that are either (X) junior as to dividend and redemption rights and liquidation preferences to the Series A Preferred Stock or (Y) Permitted Senior Securities, (b) such Company Securities or securities of such Subsidiary or Control Affiliate are issued either at no less than Fair Market Value for cash or upon the conversion, exercise or exchange in accordance with their terms of Company Securities previously issued in accordance with this Paragraph 1G(j), and (c) such financing does not include the payment of any fees to ABRY and/or Affiliates of ABRY, or (iii) so long as ABRY and its Affiliates control the Company, transactions with officers, directors, employees, stockholders or Affiliates of the Company or any of its Subsidiaries or with any individual related by blood, marriage or adoption to any such individual or with any entity in which any Person owns a beneficial interest that are not ABRY or any Affiliate of ABRY on such terms as are approved by ABRY; or

(k) establish, acquire or own, or allow any Subsidiary or Control Affiliate to establish, acquire or own, any Equity Securities (or securities convertible into, or exercisable or exchangeable, for Equity Securities) of ABRY or any Affiliate of ABRY, provided that the Company, a Subsidiary or a Control Affiliate may establish, acquire or own any Equity Securities of any Subsidiary or Control Affiliate that is deemed to be an Affiliate of ABRY solely by virtue of ABRY’s ownership of stock of, and control of, the Company.

In the event that holders of the majority of the Series A Preferred Stock do not make a Dividend Election prior to the expiration of the Final Dividend Election Period, the rights granted to the holders of the Series A Preferred Stock pursuant to Paragraphs 1G(a)-(i) and (k) shall terminate and have no further force or effect upon the expiration of the Final Dividend Election Period.

6

1H. Sole Remedy. The adjustments, rights and remedies set forth in Paragraph 4E of the Articles of Incorporation constitute the sole remedy and right of recovery against the Company for any and all claims by the holders of Series A Preferred Stock in connection with any breaches of Paragraph 1G (other than Paragraph 1G(i)), and each holder of Series A Preferred Stock hereby waives all other remedies, whether at law or in equity in connection with any breach of Paragraph 1G (other than Paragraph 1G(i)). Subject to the adjustments, rights and remedies set forth in Paragraph 4E of the Articles of Incorporation, upon delivery of the notice required by the initial sentence of Paragraph 4E of the Articles of Incorporation, all breaches of Paragraph 1G (other than Paragraph 1G(i)) described in such notice shall be deemed to be waived by the holders of Series A Preferred Stock and any Company Securities issued in a breach of Paragraph 1G(b) described in such notice will constitute Permitted Senior Securities. All other terms contained in this Agreement will remain in full force and effect.

1I. Irrevocable Proxy. The holders of the Series A Preferred Stock hereby acknowledge and agree that, except as specifically set forth in the Articles of Incorporation or this Agreement, the Series A Preferred Stock shall not have the right to vote on any matter as a separate class with respect to any matter on which shareholders of the Company are entitled to vote. In furtherance thereof, each of the holders of the Series A Preferred Stock hereby appoints ABRY as its or his true and lawful proxy and attorney-in-fact, with full power of substitution, to vote all of its or his shares of Series A Preferred Stock in any circumstance in which a separate class vote of the Series A Preferred Stock is required pursuant to the terms of the Texas Business Corporation Act but is not required by the express terms of the Articles of Incorporation (disregarding Paragraph 4A of Part 4 of Article Four of the Articles of Incorporation in making such determination) or this Agreement. The proxies and powers granted by each holder of Series A Preferred Stock pursuant to this Paragraph 1I are coupled with an interest and are given to secure the agreements herein. Such proxies and powers shall be irrevocable until the Series A Preferred Stock is converted into Common Stock and shall survive the death, disability, bankruptcy or dissolution of any holder of Series A Preferred Stock and the subsequent holders of Series A Preferred Stock.

2. Provisions Relating to Transfers of Company Securities.

2A. General Restrictions on Transfers.

(a) During the term of this Agreement, no shares of Restricted Stock may be transferred except pursuant to (i) a Permitted Transfer to a Permitted Transferee, (ii) a sale that complies with the provisions of Paragraphs 2B and 2E of this Agreement; provided that (A) shares of Austin Ventures Recapitalization Stock and (B) any 2002 Warrants or 2002 Warrant Shares that are transferred to a purchaser of the notes issued under the 2002 Note Agreement in conjunction with the transfer and sale of such notes, shall each be excluded from the restrictions set forth in Paragraph 2B (iii) the Sale of the Company pursuant to Part 3 of this Agreement, or (iv) the redemption provisions contained in the Articles of Incorporation with respect to the Series A Preferred Stock. During the term of this Agreement, no ABRY Shares may be transferred, except pursuant to (x) a Permitted Transfer to a Permitted Transferee, (y) a sale that complies with Paragraph 2E of this Agreement and, during any Transfer Period, Paragraph 2B of this Agreement, or (z) the Sale of the Company pursuant to Part 3 of this Agreement. Notwithstanding the foregoing, any transfer of shares of Restricted Stock or ABRY

7

Shares must comply with the provisions of Paragraph 2D of this Agreement, and shares of Restricted Stock and ABRY Shares may be pledged as contemplated by Paragraph 6M of this Agreement.

(b) During the term of this Agreement, no holder of Series A Preferred Stock may transfer any shares of Series A Preferred Stock without the prior written consent of holders of a majority of the ABRY Shares, except pursuant to (v) the redemption provisions contained in the Articles of Incorporation, (w) the Co-Sale right described in Paragraph 2E, prior to the Dividend Election Date, (x) a Permitted Transfer to a Permitted Transferee, (y) the Sale of the Company or (z) a pledge of Company Securities to the Lenders as acknowledged by the parties hereto pursuant to Paragraph 6M of this Agreement.

2B. Right of First Refusal.

(a) Except pursuant to a Permitted Transfer to a Permitted Transferee or the Sale of the Company pursuant to Part 3 of this Agreement, a holder of Restricted Stock (excluding any Austin Ventures Recapitalization Stock held by such holder) may only sell shares of Restricted Stock to another Person if (i) such holder has received a bona fide written offer to purchase such shares of Restricted Stock and (ii) such holder has complied with the provisions of this Paragraph 2B and Paragraph 2E. Whenever and as often as any holder of Restricted Stock desires to sell any shares of Restricted Stock pursuant to such a bona fide written offer to purchase such shares, such holder (for purposes of this Paragraph 2B, the “Selling Shareholder”) shall give written notice (the “Selling Shareholder Notice”) to the Company and to each of the other Shareholders (each, an “Offeree Shareholder”) to such effect, enclosing a copy of such offer and specifying the number of shares of Restricted Stock that the Selling Shareholder desires to sell, the name of the Person(s) to whom the Selling Shareholder desires to make such sale and the consideration per share of Restricted Stock that has been offered in connection with such offer. Upon receipt of a Selling Shareholder Notice, the Offeree Shareholder(s), pro rata in accordance with their ownership of shares of Common Stock and 2002 Warrant Shares, calculated on a fully diluted as if converted basis, shall have the right and option to purchase the shares proposed to be sold for cash at the purchase price per share specified in such Selling Shareholder Notice, exercisable for 20 days after the receipt of such Selling Shareholder Notice. Failure of any Offeree Shareholder to respond to such notification within such 20-day period shall be deemed to constitute a notification to the Selling Shareholder of such Offeree Shareholder’s decision not to exercise such Offeree Shareholder’s right and option to purchase such shares under this Paragraph 2B. If any Offeree Shareholder fails to exercise its first right and option, the Selling Shareholder shall give written notice to each of the other Offeree Shareholders who has elected to purchase its pro rata share of the shares proposed to be transferred, and each such Offeree Shareholder shall have the right, exercisable for a period of five days from the date of the receipt of such notice, to elect to purchase the remaining shares, pro rata in accordance with their ownership of shares of Common Stock and 2002 Warrant Shares, calculated on a fully diluted as if converted basis, as compared to the shares of Common Stock, calculated on a fully diluted as if converted basis, held by all such electing Offeree Shareholders, or in such other proportions as they may otherwise agree upon. In the event the consideration to be paid for each share of Common Stock as set forth in the Selling Shareholder Notice includes non-cash consideration, the dollar value of such non-cash consideration shall be its fair market value as determined by the Selling Shareholder and holders of a majority of the

8

Common Stock and 2002 Warrant Shares, calculated on a fully diluted as if converted basis, who have elected to purchase shares from the Selling Shareholder. If such parties are unable to reach an agreement within 15 days after receipt of the Selling Shareholder Notice, the fair market value of such non-cash consideration will be determined by an independent appraiser jointly selected by the Selling Shareholder, on the one hand, and the holders of a majority of the Common Stock and 2002 Warrant Shares, calculated on a fully diluted as if converted basis, voting as a single class, on the other hand, who have elected to purchase shares from the Selling Shareholder and the period within which an Offeree Shareholder may exercise its right or option under this Paragraph shall be extended until 10 days after such appraisal is completed.

(b) Each Offeree Shareholder may exercise the right and option provided above by giving written notice (the “Offeree Shareholder Notice”) of its decision to exercise such right and option to the Selling Shareholder within the 20-day period specified above, specifying the date (not later than five days from the date of expiration of all applicable first right and options to purchase shares under this Paragraph) upon which payment of the purchase price for the shares purchased pursuant to this Paragraph shall be made. The Selling Shareholder shall deliver to each Offeree Shareholder at the Company’s principal office, one day prior to the payment date, wire transfer instructions, and on the payment date specified in the Offeree Shareholder Notice, the certificate or certificates representing such shares, properly endorsed for transfer, against payment of the purchase price therefor by such Offeree Shareholder in immediately available funds.

(c) If all the shares proposed to be transferred are not purchased by the Offeree Shareholder(s) in accordance with this Paragraph 2B, the Selling Shareholder shall not be required to sell any of such shares to the Offeree Shareholder(s), and during the 90-day period commencing on the expiration of the rights and options provided for in this Paragraph 2B, the Selling Shareholder may sell all (but not less than all) of such shares to the transferee named in the Selling Shareholder Notice for a consideration equal or greater than and on the other terms and conditions specified in the Selling Shareholder Notice, free of the restrictions on such sale contained in this Paragraph 2B (but subject to the other terms and conditions hereof, including Paragraph 2D and Paragraph 2E of this Agreement).

(d) For the purposes of calculating the number of shares an Offeree Shareholder may acquire under this Paragraph 2B and for purposes of calculating the number of shares an Eligible Shareholder may transfer under Paragraph 2E below, no Common Stock or Company Securities (including the 2002 Warrant Shares) that are convertible into, or exercisable or exchangeable for Common Stock (“Convertible Securities”) held by an Offeree Shareholder or any Eligible Shareholder, as applicable, shall be deemed issued and outstanding unless (i) such Common Stock or Convertible Securities have vested or are not subject to vesting and (ii) if such Offeree Shareholder or Eligible Shareholder, as applicable, is a Management Shareholder, such Offeree Shareholder or Eligible Shareholder, as applicable, is then an employee of the Company.

2C. Contractual Preemptive Rights. The parties hereto agree that their respective preemptive or similar rights with respect to the issuance of Company Securities by the Company after the date hereof shall be governed exclusively by this Paragraph 2C. If prior to a Qualified Public Offering, the Company shall issue any Company Securities (including any transfer by the

9

Company of previously-issued Company Securities), each holder of 2002 Warrant Shares, Recapitalization Common Stock or Series A Preferred Stock if a Dividend Election has not been made (and, with respect to Austin Ventures, each Affiliate of Austin Ventures (collectively, the “AV Partners”)) and the Hull Partnership shall be entitled to purchase the proportion of such Company Securities equal to the quotient determined by dividing (1) the aggregate shares of Common Stock and Series A Preferred Stock beneficially held by such holder and (2) the total number of shares of Common Stock, 2002 Warrant Shares and Series A Preferred Stock outstanding (assuming, in each case, the conversion, exercise or exchange of all outstanding Company Securities, including outstanding Company Securities held by such holder) (with respect to the AV Partners, Austin Ventures shall designate which of the AV Partners shall purchase shares and in what quantities so that the proportion of all shares purchased by the AV Partners and Austin Ventures in the aggregate is the same as if only Austin Ventures were purchasing); provided, however (a) if such holder elects to purchase such Company Securities, such holder shall be required to purchase (i) such Company Securities on the same terms and conditions as such Company Securities were issued by the Company and (ii) if more than one type of Company Security is issued and/or such Company Security is issued together with any Funded Debt, a pro rata amount of each such Company Security and/or such Funded Debt issued and (b) that such preemptive right shall not apply to (i) Company Securities issued to employees or independent contractors of or consultants to the Company under any Approved Plan, (ii) Company Securities issued in connection with an exercise of the preemptive rights granted hereunder, (iii) Series A Preferred Stock issued to Austin Ventures as a dividend or dividends in Series A Preferred Stock, (iv) Company Securities issued upon conversion of Series A Preferred Stock, (v) Company Securities issued upon exercise of the Heller Warrant or the 2002 Warrant or upon conversion of Class B Common Stock, (vi) Company Securities issued as consideration in the merger with or acquisition of another Person or an acquisition of assets other than cash, (vii) Company Securities issued in connection with a public offering, or (viii) Company Securities issued as a result of a Tax Valuation Event (as defined in the Recapitalization Agreement). A holder of Recapitalization Common Stock or Series A Preferred Stock, an AV Partner or the Hull Partnership may exercise his or its right under this Paragraph 2C to purchase Company Securities by providing written notice to the Company within 20 days, and by paying the purchase price therefor at the principal office of the Company within 30 days, after the receipt of notice from the Company (which notice by the Company shall be given at least 30 days before the issuance of the Company Securities) stating the amount of Company Securities it intends to issue and the price and characteristics thereof. The holder, the Hull Partnership or AV Partners, as applicable, shall pay such purchase price in immediately available funds. A holder’s, the Hull Partnership’s or an AV Partner’s, as applicable, contractual preemptive rights hereunder shall be deemed to be exercised immediately prior to the close of business on the day of payment of the purchase price in accordance with the foregoing provisions, and at such time such holder, the Hull Partnership or AV Partner, as applicable, shall be treated for all purposes as the record holder of the Company Securities, as the case may be. As promptly as practicable (and in any event within 10 days) on or after the purchase date, the Company shall issue and deliver at its principal office a certificate or certificates for the number of full shares or amount, whichever is applicable, of Company Securities together with cash for any fraction of a share or portion of a Company Security at the purchase price to which the holder, the Hull Partnership or AV Partner, as applicable, is entitled hereunder.

10

2D. Transferees and Future Holders of Capital Stock. Except as otherwise specifically provided herein, (a) any transferee or other Person who shall acquire (either voluntarily or involuntarily, by operation of law or otherwise) any Company Securities from any party to this Agreement shall be bound by all the terms and conditions of this Agreement to the same extent as such party and (b) any Person who shall acquire shares of Common Stock or Series A Preferred Stock shall agree to be bound by all the terms and conditions of this Agreement to the same extent as if it were an original party to this Agreement and execute an addendum agreement with the parties hereto in the form of Exhibit B attached hereto, agreeing to be bound hereby. Any attempted transfer of Company Securities by any party to this Agreement other than in accordance with this Agreement shall be null and void and the Company shall refuse to recognize any such transfer and shall not reflect on its records any change in record ownership of such Company Securities pursuant to any such transfer. The Company shall not effect any transfer of Company Securities by any party to this Agreement until: (i) it has received evidence satisfactory to it that all of the provisions of this Agreement applicable to such transfer have been complied with and (ii) each transferee of such Company Securities (and such transferee’s or other Person’s spouse, if any) has executed an addendum agreement with the parties hereto in the form of Exhibit B attached hereto, agreeing to be bound hereby. Each transferee of Company Securities shall take such Company Securities subject to, and be fully bound by, this Agreement with the same effect as if it were a party hereto, with those rights and obligations hereunder expressly provided herein.

2E. Co-Sale Right.

(a) Subject to Paragraph 2E(c) of this Agreement, whenever and as often as any party hereto (a “Transferring Shareholder”) desires to sell any Common Stock, 2002 Warrant Shares or Series A Preferred Stock (prior to the delivery of a Dividend Election) (“Triggering Securities”), the Transferring Shareholder shall give written notice (the “Transferring Shareholder Notice”) to each other party hereto that is a holder of Common Stock or any Convertible Security (each, an “Eligible Shareholder”) to such effect, enclosing a copy of the written offer (or, if no written offer exists, a detailed written summary of such unwritten offer) specifying the number and type of Triggering Securities which the Transferring Shareholder desires to sell (and, in the case of Triggering Securities other than Common Stock, the number of shares of Common Stock such Triggering Securities are convertible into, or exercisable or exchangeable for), the name of the Person(s) to whom the Transferring Shareholder desires to make such sale and the purchase price per share of Triggering Securities which has been offered in connection with such offer. Each Eligible Shareholder shall have the right, at such Eligible Shareholder’s option, either to (i) exercise its rights, if any, under Paragraph 2B of this Agreement (if such Paragraph 2B applies to such sale) or (ii) to participate in the sale to the prospective purchaser pursuant to this Paragraph 2E (the “Co-Sale Right”). For the avoidance of doubt, for purposes of this Paragraph 2E, a sale of 2002 Warrants constitutes a sale of 2002 Warrant Shares by the holder of such Warrants.

(b) An Eligible Shareholder may exercise his or its Co-Sale Right by giving written notice (the “Offeree Shareholder Notice”) to the Selling Shareholder within 20 days after the receipt of the Transferring Shareholder Notice. If any Eligible Shareholder exercises his or its Co-Sale Right, the Transferring Shareholder shall arrange for the sale to the prospective purchaser of up to the quantity of Common Stock (including, in the case of

11

Convertible Securities, shares of Common Stock issuable upon the conversion, exercise or exchange of such Convertible Securities) held by each Eligible Shareholder delivering an Offeree Shareholder Notice which bears the same proportion to the total number of shares of Common Stock (on a fully diluted as if converted basis) owned by such Eligible Shareholder as the number of shares of Common Stock (including 2002 Warrant Shares) (on a fully diluted as if converted basis) being sold by the Transferring Shareholder bears to the total number of shares of Common Stock (including 2002 Warrant Shares) (on a fully diluted as if converted basis) owned by the Transferring Shareholder, at the purchase price per share and on the terms and conditions specified in the Transferring Shareholder Notice. For purposes of this Paragraph 2E(b):

If the Transferring Shareholder proposes to sell only Common Stock, an Eligible Shareholder may elect to sell (A) Common Stock (1) held by such Eligible Shareholder and/or (2) issuable to such Eligible Shareholder upon the conversion, exercise or exchange of Convertible Securities held by such Eligible Shareholder (but only to the extent such Convertible Securities are not subject to vesting at the time of such sale by the Transferring Shareholder), at the purchase price per share specified for the Common Stock in the Transferring Shareholder Notice, and/or (B) Convertible Securities held by such Eligible Shareholder (but only to the extent such Convertible Securities are not subject to vesting at the time of such sale by the Transferring Shareholder), at the purchase price per share of Common Stock specified in the Transferring Shareholder Notice less any consideration payable upon exercise of any such Convertible Security multiplied by the number of shares of Common Stock issuable upon the conversion, exercise or exchange of such Convertible Securities.

(c) The Co-Sale Right shall not apply to (i) the repurchase or redemption by the Company of any Company Securities held by employees or former employees or their transferees, (ii) any event which is a “liquidation” (as defined in the Articles of Incorporation), (iii) transfers of Company Securities to any Permitted Transferee, (iv) a pledge of Company Securities to the Lenders as acknowledged by the parties hereto pursuant to Paragraph 6M of this Agreement, (v) any sale of Restricted Stock to Offeree Shareholders pursuant to Paragraph 2B hereof, or (vi) the repurchase or redemption of any shares of Series A Preferred Stock pursuant to the Articles of Incorporation.

3. Liquidity Rights.

3A. Sale of the Company.

(a) Subject to the terms of this Paragraph 3A, at any time and from time to time during any period, other than a Transfer Period, the holders of a majority of the ABRY Shares (the “ABRY Holders”) may elect, by giving written notice (an “ABRY Sale Notice”) of such election to the Company, to initiate procedures for the Sale of the Company; provided, however, that upon delivery of a Preferred Sale Notice (as defined below), the ABRY Sale Notice shall immediately be deemed rescinded and of no further force or effect, and the Company shall proceed with the Sale of the Company process pursuant to this Part 3 in accordance with the procedures governing a Sale of the Company process initiated by the Preferred Initiating Holders (as defined below).

12

(b) If a Dividend Election has been made and the Company fails to redeem all outstanding shares of Series A Preferred Stock (for any reason, including that such redemption is prohibited by any other agreement to which the Company is a party (including restrictions in the agreements pursuant to which Permitted Senior Securities are issued or by the terms of such securities themselves) or that the funds of the Company legally available to make such redemption are insufficient) on or prior to June 30, 2009, the holders of a majority of the outstanding shares of Series A Preferred Stock (the “Preferred Initiating Holders”) may elect, by giving written notice (a “Preferred Sale Notice”) to the Company within 45 days after June 30, 2009, to initiate procedures for the Sale of the Company. If a Preferred Sale Notice or an ABRY Sale Notice is given, the sale procedures set forth below shall apply.

3B. Sale Procedure.

(a) In the event the Company receives an ABRY Sale Notice or a Preferred Sale Notice, the Board of Directors shall, as promptly as practicable, pursue a process, the goal of which is to bring about the Sale of the Company, by engaging a Qualified Investment Banker, at the Company’s expense, to represent the Company and the Shareholders in connection with the Sale of the Company and seek indications of interest, proposals and offers regarding the same (“Sale Proposals”). The Company and the Shareholders shall use their reasonable best efforts to facilitate the Sale of the Company process, which will be conducted, at the Company’s expense, at the direction of and controlled by the Directing Holders (as defined in Paragraph 3B(b)). Without limiting the foregoing, the Directing Holders may negotiate with prospective parties to a Sale of the Company and any Sale Proposal, as modified as a result of such negotiations and however embodied (including in the form of one or more definitive agreements for execution by the Company and/or the Shareholders), will continue to constitute a Sale Proposal.

(b) If the Sale of the Company process is initiated by delivery of an ABRY Sale Notice that is not deemed rescinded pursuant to the terms of Paragraph 3A(a) above, then the “Directing Holders” will be holders of a majority of the ABRY Shares. If the Sale of the Company process is initiated by delivery of a Preferred Sale Notice or an ABRY Sale Notice that is subsequently deemed rescinded pursuant to the terms of Paragraph 3A(a) above, then the “Directing Holders” will be holders of a majority of the Series A Preferred Stock.

(c) During the Sale of the Company process, the Company shall, from time to time (and not less frequently than once per week), give to each of the holders of the Warrant Shares, a written update (a “Sale Update”) as to the progress of the Sale of the Company process and describing each Sale Proposal received by the Company or the Qualified Investment Banker engaged to pursue the Sale of the Company, setting forth the name of the proposed purchaser, a description of the consideration to be received upon the Sale of the Company, the proposed date for closing the Sale of the Company and the other material terms of each Sale Proposal. The Company shall also provide each holder of 2002 Warrant Shares with copies of each Sale Proposal together with all such other information pertaining thereto as may be reasonably be requested by any such holder of 2002 Warrant Shares.

(d) At any time during the Sale of the Company process, the Directing Holders may direct the Company and/or the other Shareholders to pursue, accept, decline to

13

pursue, cease to pursue or reject any Sale Proposal and otherwise direct and control the Sale of the Company process. Nothing herein will prohibit the Directing Holders from contemporaneously pursuing, or directing that others pursue, more than one Sale Proposal.

3C. Cessation of Sale Procedure. At any time after the Sale of the Company process has been initiated, the Directing Holders shall have the right to direct the Company to cease the solicitation of offers for the Sale of the Company.

3D. Accepted Sale Proposals. At any time during the Sale of the Company process, the Directing Holders may give the Company notice (or at any time, other than while a Sale of the Company process initiated by a Preferred Sale Notice is ongoing, the ABRY Holders may give the Company a notice) to the effect that they have elected that the Company and/or the Shareholders accept a Sale Proposal (an “Accepted Proposal”); provided that the ABRY Holders may not give notice of an Accepted Proposal unless: (x) if a Dividend Election has been made, the Sale Proposal to be accepted provides for the payment of all amounts payable to the holders of Series A Preferred Stock pursuant to the terms of the Articles of Incorporation and (y) all holders of Company Securities of the same class as ABRY would receive the same form of consideration and the same proportion of aggregate net consideration as ABRY is receiving in respect of such Company Securities under such Sale Proposal. The Company will then give notice thereof (the “Acceptance Notice”) to the other Shareholders. Within 10 days following receipt of the Acceptance Notice (or such longer period as the Initiating Holder may specify), the Company (and/or each Shareholder, if the Accepted Proposal is an offer to acquire Company Securities by sale, merger or otherwise), must accept the Accepted Proposal, including entering into any related definitive agreement(s) consummating the Sale of the Company in accordance with the terms and conditions thereof; provided, however, that any obligation or other liability of any Shareholder will be individual to each Shareholder (and not joint or joint and several) and will be limited to the net amount of proceeds received by such Shareholder from such Sale.

3E. Best Efforts.

(a) The Company and each Shareholder agree to use reasonable best efforts to effect the Sale of the Company pursuant to any Accepted Proposal, including, without limitation, voting all shares of voting stock held by such Shareholder to approve a sale of assets by the Company followed by the liquidation and dissolution of the Company, or to adopt a plan of merger or consolidation by the Company included in the terms of such Accepted Proposal, and waiving all related dissenters’ appraisal and similar rights.

(b) During the Sale of the Company process, so long as they are the Directing Holders, the Preferred Initiating Holders will act in good faith to conduct such process in a manner designed to maximize the consideration offered for the equity of the Company; provided, that, any Directing Holders may also take into consideration factors such as the amount and form of consideration to be paid, the timing of, and contingencies related to, the payment of the consideration to be paid, the relative liquidation preferences and seniority positions of the holders of Company Securities, the timing of the closing of the Sale of the Company, the likelihood of the consummation of the Sale of the Company, the nature, type and availability of financing sources to fund the consideration to be paid and such other reasonable factors as such Directing Holders may, in their sole discretion (acting in good faith as described above), deem to

14

be relevant. Notwithstanding the foregoing, the Shareholders (other than the Initiating Holders) acknowledge that the Directing Holders (i) shall not have any duty to postpone or, once initiated, suspend the Sale of the Company process and (ii) shall have the sole discretion (acting in good faith as described above) to (a) take into consideration those factors set forth in the preceding sentence and such other reasonable factors as such Directing Holders deem relevant in evaluating each Sale Proposal and (b) provided the Directing Holders have conducted the Sale of the Company process in the manner described above, accept any Sale Proposal at any time during such process and to require that the Company and/or the Shareholders agree to consummate, and consummate, a Sale of the Company pursuant to the provisions of this Part 3.

3F. Initial Public Offering. Without the prior written consent of the Directing Holders, the Company shall not pursue an initial public offering of Company Securities during the time the Sale of the Company is being sought pursuant to this Part 3.

4. Definitions. For the purposes of this Agreement, the following terms shall have the meanings set forth below:

“1999 Stock Plan” means the Company’s 1999 Stock Option Plan, dated November 3, 1999, which provides for issuance of up to 150,000 shares of Class A Common Stock.

“2001 Stock Plan” means the Company’s 2001 Stock Option Plan, dated April 27, 2001, which provides for issuance of up to 250,000 shares of Class A Common Stock.

“2002 Note Agreement” means the Subordinated Note and Warrant Purchase Agreement, dated as of January 18, 2002, between the Company and The Northwestern Mutual Life Insurance Company, as amended.

“2002 Warrants” means the warrants to acquire up to 1,133,328 shares of Class A Common Stock (subject to adjustment as provided in such warrants) issued pursuant to the 2002 Note Agreement.

“2002 Warrant Shares” means (i) the shares of Class A Common Stock issued or issuable upon the exercise of the 2002 Warrants and (ii) any Class A Common Stock or other Common Stock issuable with respect to the securities referred to in clause (i) by way of a stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization; for purposes of this Agreement, any Person who holds 2002 Warrants shall be deemed to be the holder of the 2002 Warrant Shares obtainable upon the exercise of such 2002 Warrants regardless of any restriction or limitations on the exercise of such 2002 Warrants, such 2002 Warrant Shares shall be deemed to be in existence, and such Person shall be entitled to exercise the rights, and shall be subject to the obligations, of a holder of such 2002 Warrant Shares hereunder.

“ABRY” means ABRY Partners IV, L.P. and ABRY Investment Partnership, L.P., collectively.

“ABRY Shares” means (i) any Common Stock issued to ABRY in the Recapitalization, and (ii) any Common Stock issued or issuable with respect to the securities

15

referred to in clause (i) above by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization.

“Affiliate” means with respect to any Person, a Person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such Person, and, in the case of an individual, includes any relative or spouse of such individual, or any relative or such spouse, who has the same home as such individual. The term “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. For purposes of Paragraphs 1G(j) and (k) hereof and the definition of Fair Market Value, with respect to ABRY, the term “Affiliate” shall also include any limited partner or general partner of either ABRY Partners IV, L.P. or ABRY Investment Partnership, L.P. and any Affiliate of any such general partner or limited partner.

“Appraisal Firm” means a nationally-recognized investment banking or appraisal firm that, at the time in question, is not engaged, and during the three preceding years has not been engaged, by the Company or any Affiliate thereof.

“Approved Plan” means the 1999 Stock Plan, the 2001 Stock Plan and any other written stock option, stock purchase or similar incentive plan (or options to purchase up to 400,000 shares of Class A Common Stock) approved by the Board of Directors (with a majority of the Purchaser Directors concurring).

“Articles of Incorporation” means the Articles of Incorporation of the Company, as in effect from time to time.

“Assets” means the assets of the Company and its Subsidiaries on a consolidated basis as of the end of the preceding fiscal quarter as determined in accordance with GAAP.

“Austin Ventures” means Austin Ventures III and Austin Ventures V, collectively.

“Austin Ventures III” means Austin Ventures III-A, L.P. and Austin Ventures III-B, L.P., collectively.

“Austin Ventures V” means Austin Ventures V, L.P. and Austin Ventures V Affiliates Fund, L.P., collectively.

“Austin Ventures Recapitalization Stock” means the Series A Preferred Stock originally issued to Austin Ventures in the Recapitalization; provided that any such Series A Preferred Stock that is transferred pursuant to the Co-Sale Right described in Paragraph 2E shall thereupon cease to be Austin Ventures Recapitalization Stock.

“Board of Directors” means the board of directors of the Company.

“Class A Common Stock” means the Company’s Class A Common Stock, par value $.01 per share.

16

“Class B Common Stock” means the Company’s Class B Common Stock, par value $.01 per share.

“Common Stock” means, collectively, the Company’s Class A Common Stock and Class B Common Stock, par value $.01 per share, and any capital stock of any class of the Company hereafter authorized that is not limited to a fixed sum or percentage of par or stated value in respect to the rights of the holders thereof to participate in dividends or in the distribution of assets upon any liquidation, dissolution or winding up of the Company.

“Company Security” means any Equity Security of the Company.

“Confidential Information” means all information (whether technical, marketing, business, financial or otherwise), in whatever form (whether tangible, orally communicated, physically communicated or disclosed in writing, electronically or otherwise, including without limitation information disclosed by samples or demonstrations of processes, techniques or equipment) which is disclosed to any Shareholder prior to or subsequent to the date of this Agreement and which relates in any way to the Company or any of its Subsidiaries or Control Affiliates, their respective technology and their respective businesses, including any information received by any Shareholder in connection with any Board observer rights to which such Shareholder is entitled pursuant to Paragraph 1D above; provided that Confidential Information shall not include, as to any particular Shareholder, information that (a) was publicly known or otherwise known to such Shareholder at the time it was disclosed to such Shareholder, (b) subsequently becomes publicly known through no act or omission by such Shareholder or any Person acting on its behalf, (c) otherwise becomes known to such Shareholder (other than through disclosure by the Company or any Subsidiary or Control Affiliate) from a source that, to the knowledge of such Shareholder, is not subject to a requirement of confidentiality with respect to the Company or any Subsidiary or Control Affiliate or such information or (d) constitutes financial statements delivered to such Shareholder that are otherwise publicly available.

“Control Affiliate” means an Affiliate in which the Company (directly or indirectly) owns or holds any Equity Securities.

“Convertible Securities” has the meaning set forth in Paragraph 2B(d).

“Debt Amount” has the meaning set forth in the Articles of Incorporation, as of the date hereof.

“Dividend Election” has the meaning set forth in the Articles of Incorporation, as of the date hereof.

“Dividend Election Date” has the meaning set forth in the Articles of Incorporation, as of the date hereof.

“Dividend Election Period” has the meaning set forth in the Articles of Incorporation, as of the date hereof.

“EBITDA (LQA)” has the meaning set forth in the Articles of Incorporation.

17

“Equity Securities” means any capital stock, joint venture interest or similar equity security, including without limitation, securities containing equity features and securities containing profit participation features, or any security convertible, exercisable, or exchangeable, with or without consideration, into or for any stock, joint venture interest or similar equity security, or any security carrying any warrant or right to subscribe for or purchase any stock, joint venture interest or similar security, or any such warrant or right.

“Fair Market Value” means the value of the Company Securities in question (a) determined in good faith by the Board if 20% or more of such Company Securities are being issued to one or more Persons that are neither ABRY nor an Affiliate of ABRY and (b) either as agreed by the Company and the holders of a majority of the Series A Preferred Stock or, in the absence of such an agreement, as determined by an Appraisal Firm selected by the holders of a majority of the Series A Preferred Stock and approved by the Company (such consent not to be unreasonably withheld or delayed), if more than 80% of such Company Securities are being issued to Persons that are either ABRY or an Affiliate of ABRY. The determination of such Appraisal Firm shall be final and binding on the Company and the holders of the Series A Preferred Stock, and the fees and expenses of such Appraisal Firm shall be paid by the Company.

“fair market value” means the price at which an asset would change hands between a willing buyer and a willing seller when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, and both parties are able, as well as willing, to trade and are well-informed about the asset and the market for the asset.

“Final Dividend Election Period” means the 30-day period subsequent to the date upon which EBITDA (LQA) for the quarterly period ending on June 30, 2008 is finally determined pursuant to Paragraph 4D of the Articles of Incorporation.

“Funded Debt” has the meaning set forth in the Articles of Incorporation, as of the date hereof.

“GAAP” means, at any date of determination, generally accepted accounting principles as in effect in the United States from time to time.

“Governmental Authority” means any Federal, state, local or foreign government, or other entity (including any governmental or quasi-governmental agency or authority) exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.

“Heller Warrant” means the Company’s Warrant for the purchase (subject to adjustment as provided therein) of 367,238 shares of Class B Common Stock, issued to Heller Financial, Inc. pursuant to that certain Warrant Agreement, by and between the Company and Heller Financial, Inc., dated November 10, 1994, as amended by that certain First Amendment to Warrant Agreement, dated as of June 15, 1998 (the “Heller Warrant Agreement”).

“Hull Partnership” means the Hull Family Limited Partnership, L.P.

“Leverage Multiple” has the meaning set forth in the Articles of Incorporation, as of the date hereof.

18

“Management Shareholder” means the individuals set forth on the Schedule of Management Shareholders attached hereto and any other officer or employee of the Company or its Subsidiaries to whom the Company issues or transfers Common Stock, including upon exercise of any options, warrants or any other Company Securities.

“Measurement Date” means any date upon which the Company or any Subsidiary or Control Affiliate acquires an ancillary business.

“Permitted Leverage Multiple” has the meaning set forth in the Articles of Incorporation, as of the date hereof.

“Permitted Transfer” means (a) in the case of any Shareholder that is an individual, a transfer of any or all of the shares of Company Securities owned by such Shareholder to his spouse or children, or to family partnerships, trusts or other entities established for the benefit of his spouse or children; provided that the transferee grants to the transferor an irrevocable proxy coupled with an interest to vote all of the shares of Company Securities so transferred and agrees to be bound by all of the provisions of this Agreement, including, without limitation, Paragraphs 2A, 2B and 2E of this Agreement, to the same extent as the transferor was bound; (b) in the case of any Shareholder that is a partnership, limited liability company, corporation, trust or other entity other than an individual, a transfer of any or all of the shares of Company Securities owned by such Shareholder (i) to its Affiliates, (ii) to its general or limited partners, members, shareholders or beneficiaries, or (iii) to an entity owned by or organized for the benefit of the general or limited partners, members, shareholders, officers, directors, employees, Affiliates or beneficiaries of such Shareholder, as applicable; provided that, in each case, the transferee agrees to be bound by all of the provisions of this Agreement, including, without limitation, Paragraphs 2A, 2B and 2E of this Agreement, to the same extent as the transferor was bound; and (c) in the case of any Shareholder, a pledge of any or all of the shares of Company Securities owned by such Shareholder to secure the repayment of any bona fide indebtedness owing by such Shareholder, the Company or any Subsidiary of the Company to a financial institution; provided that such Shareholder retains the power to vote the shares of Company Securities so pledged until such time as the pledgee shall have realized upon the pledge and that the provisions of this Agreement, including, without limitation, Part 2 of this Agreement, shall be applicable to the shares of Company Securities so pledged to the same extent as the pledgor is bound.

“Permitted Transferee” means any Person (other than the Company) who shall acquire any shares of Company Securities in a Permitted Transfer.

“Person” means an individual, a partnership, a corporation, an association, a joint stock company, a trust, a joint venture, a limited liability company, an unincorporated organization or other similar entity or organization or a Governmental Authority.

“Preferred Holders” means the holders of the shares of Series A Preferred Stock.

“Qualified Investment Banker” shall be the investment banking firm selected by the Directing Holders from a list of three nationally recognized investment banking firms (no more than three of which firms, at the time such list is compiled, shall be engaged, or during the

19

preceding two years shall have been engaged, by the Company or any Affiliate thereof) compiled by the Company promptly following the receipt of a Sale Notice.

“Qualified Public Offering” means the sale of the Common Stock in a firm commitment, underwritten public offering registered under the Securities Act (other than a registration relating solely to a transaction under Rule 145 of the Securities Act or to an employee benefit plan of the Company) at a price (prior to underwriters’ commissions and expenses) equal to or exceeding $6.50 per share (as adjusted for subdivisions and combinations of shares of Common Stock and dividends on Class A Common Stock payable in shares of Class A Common Stock) and resulting in gross proceeds of at least $50 million.

“Recapitalization Common Stock” means (i) any Common Stock issued in the Recapitalization, (ii) the 2002 Warrant Shares, (iii) any Common Stock issued upon conversion of the Series A Preferred Stock, (iv) any Common Stock issued or issuable with respect to the securities referred to in clauses (i), (ii) and (iii) above by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization.

“Restricted Stock” means any Common Stock or Series A Preferred Stock now owned or subsequently acquired by any Shareholder of the Company or a transferee of a Shareholder in a Permitted Transfer or pursuant to Sections 2B, 2D and 2E of this Agreement, in each case other than the ABRY Shares; provided that the ABRY Shares shall be deemed to be Restricted Stock during any Transfer Period; provided further, that no shares of Common Stock acquired by any Person in the public markets following a public offering of the Common Stock registered under the Securities Act shall be deemed to be a Restricted Stock.

“Revenues” means the revenues of the Company and its Subsidiaries on a consolidated basis for the preceding fiscal quarter, as determined in accordance with GAAP, multiplied by four.

“Sale of the Company” means either (i) a sale of all or substantially all of the issued and outstanding Company Securities, (ii) a sale of all or substantially all of the assets and business of the Company and a liquidation of the Company following such sale, or (iii) a merger or consolidation of the Company with or into another Person, in each case for cash or securities.

“Securities Act” means the Securities Act of 1933, as amended, or any similar federal law then in force and the rules promulgated thereunder.

“Securities Exchange Act” means the Securities Exchange Act of 1934, as amended, or any similar federal law then in force and the rules promulgated thereunder.

“Series A Preferred Stock” means the Company’s Series A Preferred Stock, par value $0.01 per share, more fully described in the Articles of Incorporation.

“Subsidiary” means any corporation more than 50% of the outstanding voting securities of which are owned by the Company or any Subsidiary, directly or indirectly, or a partnership or limited liability company in which the Company or any Subsidiary is a general

20

partner or manager or holds interests entitling it to receive more than 50% of the profits or losses of the partnership or limited liability company.

“transfer” means a sale, assignment, transfer, pledge, encumbrance or other disposition.

“Transfer Period” means any time when ABRY and its Affiliates collectively hold less than (A) 75% of the number of shares of Common Stock such Persons collectively hold immediately following the Recapitalization (as appropriately and equitably adjusted for stock splits, stock combinations and the like) or (B) 32.4% of the Common Stock on a fully diluted as if converted basis.

“Triggering Funded Debt” has the meaning set forth in the Articles of Incorporation, as of the date hereof.

5. Confidential Information.

Each Shareholder agrees (as to itself) that it will, and will cause each Observer that it designates to, maintain the confidentiality of all Confidential Information in accordance with procedures adopted by such Shareholder in good faith to protect confidential information of third parties delivered to it and will not use (and will cause each Observer that it designates not to use) any Confidential Information other than for a purpose reasonably related to such Shareholder’s investment in the Company; provided that each Shareholder and each Observer that it designates may deliver or disclose Confidential Information to (i) such Shareholder’s directors, officers, employees, agents, partners, attorneys, affiliates and financial and professional advisors (in each case, to the extent such disclosure reasonably relates to the administration of the investment represented by the Company Securities held by such Shareholder) who agree to hold confidential and refrain from using the Confidential Information substantially in accordance with the terms of this Paragraph 5, (ii) any other holder of any Company Securities that is bound by this Paragraph 5 to the same extent as such Shareholder, (iii) any Person to which such Shareholder may transfer, sell or offer to transfer or sell any Company Securities or any part thereof or any participation therein (if such Person has agreed in writing prior to its receipt of such Confidential Information to be bound by the provisions of this Paragraph 5 to the same extent as such Shareholder), (iv) any Person from which such Shareholder may offer to purchase any Company Security (if such Person has agreed in writing prior to its receipt of such Confidential Information to be bound by the provisions of this Paragraph 5 to the same extent as such Shareholder), (v) any federal or state regulatory authority having jurisdiction over such Shareholder, (vi) the National Association of Insurance Commissioners or any similar organization, or any nationally recognized rating agency that requires access to information about such Shareholder’s investment portfolio or (vii) any other Person to which such delivery or disclosure may be necessary or appropriate (w) to effect compliance with any applicable law, rule, regulation or order, (x) in response to any subpoena or other legal process, or (y) in connection with any litigation.

21

6. General Provisions.

6A. Transfer Conditions. Prior to any proposed transfer of any Series A Preferred Stock or Common Stock (other than a transfer not involving a change in beneficial ownership), unless there is in effect a registration statement under the Securities Act covering the proposed transfer, the holder thereof shall give notice to the Company of such holder’s intention to effect such transfer. Each such notice shall describe the manner and circumstances of the proposed transfer, in reasonable detail, and, if requested by the Company, shall be accompanied, at such holder’s expense, by either (i) a written opinion of legal counsel who shall be, and whose legal opinion shall be, reasonably satisfactory to the Company (it being agreed that Testa, Hurwitz & Thibeault, LLP, Vinson & Elkins L.L.P., Kirkland & Ellis LLP, Schiff Hardin LLP and Jenkens & Gilchrist, P.C. are satisfactory counsel), addressed to the Company, to the effect that the proposed transfer of the Series A Preferred Stock, 2002 Warrant Shares or Common Stock may be effected without registration under the Securities Act, or (ii) a “no action” letter from the Securities and Exchange Commission (the “Commission”) to the effect that the transfer of such securities without registration will not result in a recommendation by the staff of the Commission that action be taken with respect thereto, whereupon the holder of such Series A Preferred Stock, 2002 Warrant Shares or Common Stock shall be entitled to transfer such Series A Preferred Stock, 2002 Warrant Shares or Common Stock in accordance with the terms of the notice delivered by the holder to the Company and subject to the other provisions of this Agreement. Each certificate evidencing the Series A Preferred Stock, 2002 Warrant Shares or Common Stock transferred as provided above shall bear, except if such transfer is made pursuant to Rule 144 under the Securities Act, the appropriate restrictive legend set forth below, except that such certificate shall not bear such restrictive legend if in the opinion of counsel for such holder and the Company such legend is not required in order to establish compliance with any provision of the Securities Act. Notwithstanding the foregoing, each holder of Series A Preferred Stock, 2002 Warrant Shares or Common Stock agrees that it will not request that a transfer of the Series A Preferred Stock, 2002 Warrant Shares or Common Stock be made (or that the appropriate restrictive legend described below hereof be removed from the certificate evidencing the Series A Preferred Stock, 2002 Warrant Shares or Common Stock) solely in reliance on Rule 144(k) under the Securities Act, if as a result of such proposed transfer the Company would be rendered subject to the reporting requirements of the Securities Exchange Act.

6B. Legends on Certificates.

(a) During the term of this Agreement, the Company shall affix to each certificate issued on or after the date hereof to a party hereto and evidencing Series A Preferred Stock, 2002 Warrant Shares or Common Stock a legend in substantially the following form:

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND THE SALE, ASSIGNMENT, TRANSFER, PLEDGE OR OTHER DISPOSITION AND VOTING THEREOF ARE SUBJECT TO CERTAIN RESTRICTIONS AND AGREEMENTS CONTAINED IN A FIFTH AMENDED AND RESTATED SHAREHOLDERS AGREEMENT, DATED AS OF JULY 14, 2004, AMONG THE COMPANY AND CERTAIN SHAREHOLDERS, AS IN EFFECT FROM TIME TO TIME. A COPY OF THE SHAREHOLDERS AGREEMENT AND ALL APPLICABLE AMENDMENTS THERETO WILL BE FURNISHED BY THE COMPANY TO THE RECORD HOLDER OF THIS

22

CERTIFICATE WITHOUT CHARGE UPON WRITTEN REQUEST TO THE COMPANY AT ITS PRINCIPAL PLACE OF BUSINESS OR REGISTERED OFFICE.”

(b) During the term of this Agreement, the Company shall not effect any transfer of Series A Preferred Stock, 2002 Warrant Shares or Common Stock evidenced by a certificate issued prior to the date hereof and held by any party to this Agreement until it has advised the proposed transferee of such Series A Preferred Stock, 2002 Warrant Shares or Common Stock, as applicable, that such Series A Preferred Stock, 2002 Warrant Shares or Common Stock, as applicable, is subject to the restrictions on transfer and voting arrangements set forth in this Agreement and provided such proposed transferee with a copy of this Agreement and any applicable amendments. The Company shall make a notation on its records and give instructions to any transfer agent of the Series A Preferred Stock, 2002 Warrant Shares or Common Stock, as applicable, in order to implement the restrictions on transfer established in this Agreement.

6C. Termination; Amendment and Waiver.

(a) This Agreement shall terminate upon the earlier to occur of (i) the written agreement of (A) the holders of a majority of the Recapitalization Common Stock then outstanding (so long as such holders include holders of a majority of the ABRY Shares) and (B) the holders of a majority of the Series A Preferred Stock, if any Series A Preferred Stock is then outstanding, (ii) the acquisition by a single purchaser or group of purchasers of all of the issued and outstanding shares of the Series A Preferred Stock, 2002 Warrant Shares and Common Stock or (iii) the closing of a Qualified Public Offering.

(b) No amendment, modification or waiver of this Agreement or any provision hereof shall be effective unless made by the written agreement of the holders of a majority of the shares of Recapitalization Common Stock (so long as such holders include holders of a majority of the ABRY Shares) and (i) in the case of any amendment, modification or waiver to any provision of Paragraph 1A(b), the first sentence of Paragraph 1B, Paragraph 1C, 1D, 1E, 1G, 1H, or 1I, the first sentence of Paragraph 2A(a), Paragraph 2B(a), 2C or 2E, Part 3 of this Agreement, the definition of any defined term set forth in Part 4 of this Agreement as such term is used (directly or indirectly by use in the definition of a term that itself is used in the definition of another term) in Paragraph 1A(b), the first sentence of Paragraph 1B, Paragraph 1C, 1D, 1E, 1G, 1H or 1I, the first sentence of Paragraph 2A(a), Paragraph 2B(a), 2C or 2E, or Part 3 of this Agreement, the definition of Transfer Period, or this Section 6(b)(i), holders of a majority of the shares of the Series A Preferred Stock outstanding, if any, (ii) in the case of any amendment, modification, or waiver which adversely affects the rights or interests of the holders of the 2002 Warrant Shares, the holders of at least 66 2/3% of the 2002 Warrant Shares and (iii) in the case of any amendment, modification or waiver of Section 2(A) or 2(B) that is not governed by clause (ii) above and the definition of any defined term set forth in Part 4 of this Agreement as such term is used (directly or indirectly by use in the definition of a term that itself is used in the definition of another term), holders of a majority of the Common Stock on a fully diluted as if converted basis. Notwithstanding anything else contained herein, at such time as there is no Series A Preferred Stock outstanding, no amendment, modification or waiver of this Agreement or any provision hereof that adversely affects holders of Common Stock issued upon

23

the conversion of the Austin Ventures Recapitalization Stock vis-á-vis the holders of the ABRY Shares shall be effective unless approved by holders of a majority of the shares of Common Stock issued upon the conversion of the Austin Ventures Recapitalization Stock.

6D. Notices. All notices referred to herein will be in writing and will be personally delivered, delivered by facsimile or courier service, or mailed, certified with first class postage prepaid, to the address set forth below. Each such notice, request, demand, or other communication shall be deemed to have been given and received on the date of actual delivery thereof, if personally delivered or delivered by facsimile transmission (if receipt is confirmed at the time of such transmission by telephone), or on the third day following the date of mailing, if mailed in accordance with this paragraph, or on the day specified for delivery to the courier service (if such day is one on which the courier service will give normal assurances that such specified delivery will be made). Any notice, request, demand, or other communication given otherwise than in accordance with this paragraph shall be deemed to have been given on the date actually received. Any shareholder may change its address for purposes of this paragraph by giving written notice of such change to the corporation in the manner herein above provided. Whenever any notice is required to be given by law or by this Agreement, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of notice.

To the Company:	Monitronics International, Inc.
	12801 Stemmons Freeway
	Suite 821
	Dallas, TX 75234
	Facsimile: (972) 919-1985
	Attn: James R. Hull
With copies to:	Vinson & Elkins L.L.P.
	2001 Ross Avenue
	Suite 3700
	Dallas, TX 75201
	Facsimile: (214) 999-7714
	Attn: Christine A. Hathaway
	and
	Kirkland & Ellis LLP
	153 East 53rd Street
	New York, NY 10022
	Facsimile: (212) 446-4900
	Attn: John L. Kuehn

24

to holders of Recapitalization Common Stock to their addresses set forth on the Schedule of Holders of Recapitalization Common Stock,

With a copy to:	If to Austin Ventures:
	Jenkens & Gilchrist, P.C.
	A Professional Corporation
	1445 Ross Avenue
	Suite 3200
	Dallas, TX 75202-2799
	Facsimile: (214) 855-4300
	Attn: Gregory J. Schmitt
	and
	If to ABRY:
	Kirkland & Ellis LLP
	153 East 53rd Street
	New York, NY 10022
	Facsimile: (212) 446-4900
	Attn: John L. Kuehn
	If to NYLife
	New York Life Investment Management LLC
	51 Madison Avenue, Room 1004
	New York, NY 10010
	Facsimile: (212) 576-8340
	Attn: Office of General Counsel

25

and

Arnold & Porter

399 Park Avenue

New York, NY 10022-4690

Facsimile: (212) 715-1399

Attn: Christine D. Rogers, Esq.

and

If to PPM:

PPM America Private Equity Fund L.P.

225 W. Wacker Drive, Suite 1100

Chicago, IL 60606

Facsimile: (312) 634-0044

Attn: Bruce Saewitz

and

Kirkland & Ellis LLP

200 East Randolph Drive

Chicago, IL 60601

Facsimile: (312) 861-2200

Attn: John A. Weissenbach

and

If to CRL:

Testa, Hurwitz & Thibeault, LLP

125 High Street

Boston, MA 02110

Facsimile: (617) 248-7100

Attn: Andrew E. Taylor, Jr.

and

If to NML:

Schiff Hardin & Waite

6600 Sears Tower

Chicago, IL 60606

Facsimile: (312) 258-5600

Attn: Andrew A. Kling

26

and to the Common Shareholders, to their addresses set forth on the Schedule of Common Shareholders or, in each case, to such other address or to the attention of such other Person as the recipient party has specified by prior written notice to the sending party.

6E. Governing Law. The construction, validity and interpretation of this Agreement will be governed by the internal laws of the State of Texas without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Texas or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Texas.

6F. Entire Agreement. This Agreement and the addendum, exhibits and schedules hereto embody the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings relating to such subject matter.

6G. Further Assurances. Each party to this Agreement hereby covenants and agrees, without the necessity of any further consideration, to execute and deliver any and all such further documents and take any and all such other actions as may be necessary or appropriate to carry out the intent and purposes of this Agreement and to consummate the transactions contemplated herein.

6H. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which shall be one and the same document.

6I. Reorganization; Certain Restrictions on Application. The provisions of this Agreement shall apply to any Equity Securities resulting from any stock split or reverse stock split, stock dividend, reclassification, subdivision, consolidation or reorganization of any shares of Company Securities and to any shares of Company Securities or shares of Equity Securities of any successor company which may be received by any of the parties hereto by virtue of their respective ownership of any shares of Company Securities. Notwithstanding any other provision of this Agreement, shares of Common Stock acquired by any Person in the public markets following a public offering of the Common Stock shall not be subject to or governed by the terms of this Agreement or counted for purposes of determining such Person’s ownership interests under this Agreement.

6J. Descriptive Headings. The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement.

6K. Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement.

6L. Binding Effect. Except as otherwise expressly provided herein, all covenants and agreements in this Agreement by or on behalf of any of the parties hereto will bind and inure to the benefit of the respective heirs, personal representatives, successors and transferees of the parties hereto whether so expressed or not. In addition, and whether or not any express

27

assignment has been made, unless expressly provided otherwise, the provisions of this Agreement which are for any Preferred Holder’s benefit as a purchaser or holder of shares of Preferred Stock are also for the benefit of, and enforceable by, any subsequent holder of such Preferred Stock and (ii) for any Warrant Holder’s benefit as a purchaser or holder of 2002 Warrants or 2002 Warrant Shares are also for the benefit of, and enforceable by, any subsequent holder of 2002 Warrants and 2002 Warrant Shares.

6M. Exception for Pledge. The parties acknowledge that pursuant to the terms of (a) an Amended and Restated Pledge Agreement, dated as of July 14, 2004 (as amended and/or restated from time to time, the “Pledge Agreement”), by and between Austin Ventures, CRL, ABRY, NY Life, PPM, Hull Partnership, James R. Hull, individually, Robert Sherman, individually, Michael Gregory, individually, Michael Meyers, individually, and Stephen Hedrick, individually (collectively, the “Pledgors”) and Fleet National Bank, as Administrative Agent (the “Secured Party”) for the lenders from time to time party to the Credit Agreement (the “Lenders”), and (b) a Pledge Agreement, dated as of August 25, 2003 (as amended and/or restated from time to time, the “NML Pledge Agreement”), by and between The Northwestern Mutual Life Insurance Company (“NML”) and the Secured Party, certain Company Securities, as identified on Schedule I to the Pledge Agreement and the NML Pledge Agreement (collectively, the “Pledged Securities”), have been pledged by the Pledgors and NML for the benefit of the Lenders. The parties hereto acknowledge and consent to such pledge of the Pledged Securities and, notwithstanding any provision in this Agreement to the contrary, hereby agree that any purchaser of such Pledged Securities, including the Secured Party or the Lenders, who acquires the Pledged Securities pursuant to the terms of the Pledge Agreement and/or the NML Pledge Agreement shall take the Pledged Securities free and clear of all terms of this Agreement and neither such Persons nor such Pledged Securities shall thereafter be subject to any term or condition of this Agreement.

6N. Termination of the Third Amended and Restated Co Sale Agreement. Upon the receipt of the written consent of the requisite shareholders party to the Co Sale Agreement and the Company in accordance with the terms of Paragraph 2B of the Co Sale Agreement, as evidenced by the execution of this Agreement by the Company and such requisite shareholders party to the Co Sale Agreement, this Agreement shall supersede the Co Sale Agreement, and the Co Sale Agreement shall be terminated and all rights and obligations pursuant thereto shall be of no further force and effect as of the date hereof.

6O. Amendment of Prior Agreement.

(a) Upon the receipt of the written consent of the requisite shareholders party to the Prior Agreement and the Company in accordance with the terms of Paragraph 5C of the Prior Agreement, as evidenced by the execution of this Agreement by the Company and such requisite shareholders party to the Prior Agreement, this Agreement shall supersede the Prior Agreement, and such Prior Agreement shall be terminated and all rights and obligations pursuant thereto shall be of no further force and effect as of the date hereof.

(b) All parties to the Prior Agreement and Persons bound thereby shall now be bound by the terms hereof. Notwithstanding the fact that the signature pages hereto may name one or more Persons who have not executed this Agreement, this Agreement will be

28

a valid and effective amendment and restatement of the Prior Agreement, and will be binding on all parties to the Prior Agreement in accordance with the terms of Paragraph 5C of the Prior Agreement, when it has been executed by the Company and the requisite shareholders party to the Prior Agreement.

6P. Interpretation. The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement. Whenever required by the context, any pronoun used in this Agreement will include the corresponding masculine, feminine or neuter forms, and the singular forms of nouns, pronouns, and verbs will include the plural and vice versa. Reference to any agreement, document, or instrument means such agreement, document, or instrument as amended or otherwise modified from time to time in accordance with the terms of such agreement, document or instrument, and if applicable, of this Agreement. The use of the words “include” or “including” in this Agreement will be by way of example rather than by limitation. The use of the words “or,” “either” or “any” will not be exclusive. The parties to this Agreement have participated jointly in the negotiation and drafting of this Agreement. All terms used herein but not otherwise defined shall have the meaning ascribed to such terms in accordance with GAAP to the extent applicable. In the event an ambiguity or question of intent or interpretation arises, this Agreement will be construed as if drafted jointly by the parties to this Agreement, and no presumption or burden of proof will arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement. The parties agree that prior drafts of this Agreement will be deemed not to provide any evidence as to the meaning of any provision of this Agreement or the intent of the parties hereto with respect to this Agreement.

* * * *

29

IN WITNESS WHEREOF, the parties have executed this Fifth Amended and Restated Shareholders Agreement as of the date first above written.

MONITRONICS INTERNATIONAL, INC.
By:	/s/ JAMES R. HULL
	James R. Hull,
	President
AUSTIN VENTURES III-A, L.P.
By:	AV Partners III, L.P.,
Its General Partner
By:	/s/ BLAINE F. WESNER
	Blaine F. Wesner,
	Authorized Signatory
AUSTIN VENTURES III-B, L.P.
By:	AV Partners III, L.P.,
Its General Partner
By:	/s/ BLAINE F. WESNER
	Blaine F. Wesner,
	Authorized Signatory
AUSTIN VENTURES V, L.P.
By:	AV Partners V, L.P.,
Its General Partner
By:	/s/ BLAINE F. WESNER
	Blaine F. Wesner,
	General Partner

AUSTIN VENTURES V AFFILIATES FUND, L.P.
By:	AV Partners V, L.P.,
Its	General Partner
By:	/s/ BLAINE F. WESNER
	Blaine F. Wesner,
	General Partner
CAPITAL RESOURCE LENDERS II, L.P.
By:	Capital Resource Partners II, L.P.,
Its	General Partner
By:	/s/ ROBERT C. AMMERMAN
	General Partner
ABRY PARTNERS IV, L.P.
By:	ABRY Capital Partners, L.P.,
Its	General Partner
By:	ABRY Capital Partners, LLC,
Its	General Partner

By:	/s/ JAY M. GROSSMAN
	Name: Jay M. Grossman
	Title:

ABRY INVESTMENT PARTNERSHIP, L.P.
By:	ABRY Investment GP, LLC,
Its	General Partner
By:	/s/ JAY M. GROSSMAN
	Name: Jay M. Grossman
	Title:

THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
By:	/s/ DAVID A. BARRAS
	Name: David A. Barras
	Title: Authorized Representative
PPM AMERICA PRIVATE EQUITY FUND LP
By:	PPM America Capital Partners, LLC
Its:	General Partner
By:	/s/ BRUCE SAEWITZ
	Name: Bruce Saewitz
	Title: Senior Partner
By:	/s/ AUSTIN KRUMPFES
	Name: Austin Krumpfes
	Title: Associate
NEW YORK LIFE CAPITAL PARTNERS II, L.P.
By:	NYLCAP Managers LLC
Its:	Investment Manager
By:	/s/ JOHN E. SCHUMACHER
	Name: John E. Schumacher
	Title: President and CEO
HULL FAMILY LIMITED PARTNERSHIP, L.P.
By:	James R. Hull Management Trust,
Its	General Partner
By:	/s/ JAMES R. HULL
	James R. Hull, Trustee
/s/ ROBERT N. SHERMAN
Robert N. Sherman
/s/ MICHAEL MEYERS
Michael Meyers
/s/ STEPHEN HEDRICK
Stephen Hedrick
/s/ MICHAEL GREGORY
Michael Gregory

SCHEDULE OF COMMON SHAREHOLDERS

Existing Investors:

ABRY Partners IV, L.P.

ABRY Investment Partnership, L.P.

Capital Resource Lenders II, L.P.

Michael Gregory

Stephen Hedrick

Hull Family Limited Partnership, L.P.

Michael Meyers

Robert N. Sherman

New Investors:

PPM America Private Equity Fund LP

New York Life Capital Partners II, L.P.

SCHEDULE OF WARRANT HOLDERS

The Northwestern Mutual Life Insurance Company

SCHEDULE OF PREFERRED SHAREHOLDERS

Austin Ventures III-A, L.P.

Austin Ventures III-B, L.P.

Austin Ventures V, L.P.

Austin Ventures V Affiliates Fund, L.P.

SCHEDULE OF MANAGEMENT SHAREHOLDERS

1. Hull Family Limited Partnership, L.P.

c/o Monitronics International, Inc.

12801 Stemmons Freeway

Suite 821

Dallas, TX 75234

Facsimile: (972) 919-1985

2. Robert N. Sherman

c/o Monitronics International, Inc.

12801 Stemmons Freeway

Suite 821

Dallas, TX 75234

Facsimile: (972) 919-1985

3. Michael Meyers

c/o Monitronics International, Inc.

12801 Stemmons Freeway

Suite 821

Dallas, TX 75234

Facsimile: (972) 919-1985

4. Stephen Hedrick

c/o Monitronics International, Inc.

12801 Stemmons Freeway

Suite 821

Dallas, TX 75234

Facsimile: (972) 919-1985

5. Michael Gregory

c/o Monitronics International, Inc.

12801 Stemmons Freeway

Suite 821

Dallas, TX 75234

Facsimile: (972) 919-1985

SCHEDULE OF HOLDERS OF RECAPITALIZATION COMMON STOCK

1. Austin Ventures III-A, L.P.

Austin Ventures III-B, L.P.

Austin Ventures V, L.P.

Austin Ventures V Affiliates Fund, L.P.

300 West 6^th Street

Suite 2300

Austin, TX 78701

Facsimile: (512) 476-3952

Attn: Blaine F. Wesner

2. Capital Resource Lenders II, L.P.

c/o Capital Resource Partners

85 Merrimac Street

Suite 200

Boston, MA 02114

Facsimile: (617) 723-9819

Attn: Stephen M. Jenks

3. ABRY Partners IV, L.P.

ABRY Investment Partnership, L.P.

18 Newbury Street

Boston, MA 02116

Facsimile: (617) 859-7205

Attn: Jay Grossman

4. New York Life Capital Partners II, L.P.

51 Madison Avenue

Suite 3009 (30^th Floor)

New York, NY 10010

Facsimile: (212) 576-5591

Attn: John Schumacher

5. PPM America Private Equity Fund LP

c/o PPM America Capital Partners, LLC

225 W. Wacker Drive

Suite 1200

Chicago, IL 60606

Facsimile: (312) 634-0044

Attn: Bruce Saewitz

6. The Northwestern Mutual Life Insurance Company

720 East Wisconsin Avenue

Milwaukee, Wisconsin 53202

Facsimile: (414) 665-7124

Attn: Securities Department

EXHIBIT A TO SHAREHOLDERS AGREEMENT

INDEMNIFICATION AGREEMENT

This Indemnification Agreement (the “Agreement”) is executed on and entered into as of             ,              (the “Effective Date”) by and between Monitronics International, Inc., a Texas corporation (the “Company”), and              (“Director”).

The Company is required or permitted under certain circumstances to indemnify directors of the Company against liability incurred by them in such capacities or by reason of occupying such position. The Company desires to have Director serve as a director of the Company, and Director desires to serve, provided that he is indemnified by the Company. This is the Indemnification Agreement referred to in the Fifth Amended and Restated Shareholders Agreement (the “Shareholders Agreement”) entered into on May [    ], 2004 by the Company and the Shareholders named therein.

The parties agree as follows:

1. Definitions.

Unless the context requires otherwise, for purposes of this Agreement:

(a) “Act” shall mean the Texas Business Corporation Act, as in effect on the date of this Agreement and as hereafter amended, and any successor statute; provided that, for purposes of this Agreement, any amendment of such Act that reduces the rights of Director will be given effect only to the extent required by such Act as amended;

(b) the terms “proceedings,” “expenses” and other terms defined in Article 2.02-1 of the Act are used herein with the meanings as so defined under the Act; and

(c) the phrase “serving in a representative capacity at the request of the Company” means serving at the request of the Company as a director, officer, partner, venturer, proprietor, trustee, employee, agent or similar functionary of another corporation, partnership, joint venture, sole proprietorship, trust, employee benefit plan or other enterprise.

2. Indemnity.

(a) The Company agrees to indemnify Director to the fullest extent permitted by the Act, as soon as practicable but in any event no later than 30 days after receipt by the Company of any claim for indemnity hereunder against expenses judgments, penalties, fines and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of such expenses, judgments, fines, penalties or amounts paid in settlement of such proceeding) incurred by or on behalf of Director in connection with any proceeding in which Director was, is or is threatened to be a named a party to or witness or other participant in such proceeding because he is or was a director or officer of the Company or because he is or was serving in a representative capacity at the request of the Company.

Exhibit A, Page 1

(b) Reasonable expenses incurred by Director in connection with a proceeding referred to in Paragraph 2A in advance of the final disposition of the proceeding and without the determination specified in Sections F or G of Article 2.02-1 of the Act, promptly upon receipt by the Company of:

(i) a written affirmation by Director of his good faith belief that he has met the standard of conduct necessary for indemnification under the Act; and

(ii) a written undertaking by or on behalf of the Director to repay the amount paid or reimbursed pursuant to this Paragraph 2B if it is ultimately determined that he has not met the standard of conduct necessary for indemnification under the Act or if it is ultimately determined that indemnification of Director against expenses incurred by him in connection with that proceeding is prohibited by Section E of Article 2.02-1 of the Act.

(c) This Agreement makes mandatory the indemnification permitted under Section B of Article 2.02-1 of the Act with respect to expenses incurred in connection with a proceeding described in such provision and shall be deemed to constitute authorization of indemnification in the manner required by the Act.

3. Notification and Defense of Claim.

(a) Promptly after receipt by Director of notice of the commencement of any proceeding in which Director was, is or is threatened to be a named a party to or witness or other participant in such proceeding, if a claim for indemnity in connection with such proceeding is to be made against the Company under this Agreement, will promptly notify the Company of the commencement thereof. With respect to any such proceeding other than a proceeding brought by or on behalf of the Company or as to which Director shall have made the determination provided for in (ii) below, the Company will be entitled to participate therein at its own expense, and the Company may assume the defense thereof with counsel satisfactory to Director. After notice from the Company to Director of its election to assume the defense thereof, the Company will not be liable to indemnify Director under this Agreement against expenses subsequently incurred by Director in connection with the defense thereof other than reasonable costs of investigation or as otherwise provided below. Director shall have the right to select and employ counsel in a proceeding, but the fees and expenses of such counsel incurred after notice from the Company of its assumption of the defense thereof shall be borne by Director unless (i) the employment of such counsel by Director has been authorized by the Company, (ii) Director shall have reasonably concluded that there may be a conflict of interest between the Company and Director in the conduct of the defense of such proceeding, or (iii) the Company shall not in fact have employed counsel to assume the defense of such action, and in each case the fees and expenses of counsel shall be subject to the indemnity provided hereunder by the Company; provided, however, that in the event any other person indemnified by the Company (unless Director has reasonably concluded that there may be a conflict of interest between Director and such other person) is also named or threatened to be named defendant or respondent in a proceeding referred to in (ii) above, the fees and expenses of only one counsel employed by Director and all such other persons shall be subject to indemnity hereunder.

Exhibit A, Page 2

(b) Promptly following receipt by the Company from Director of any claim for indemnity hereunder, the Company shall in good faith make or cause to be made any determination as to reasonableness of expenses and determination that indemnification is permissible as may be required pursuant to the Act and, as soon as practicable, but in any event no later than 30 days after receipt by the Company of any claim for indemnity hereunder, following such determination, the Company shall pay or cause to be paid to Director in cash the amount of the expenses indemnified hereunder and so determined to be reasonable and permissible. Such payment shall be made out of the assets of the Company.

4. Miscellaneous.

(a) The Company expressly confirms and agrees that it has entered into this Agreement in order to induce Director to serve or continue to serve as a director or in a representative capacity at the request of the Company, and acknowledges that Director is relying upon this Agreement in continuing in such capacity and in serving as a director of the Company or in a representative capacity at the request of the Company hereafter, whether or not Director serves in any such capacity on the date of this Agreement. All agreements and obligations of the Company contained herein shall continue during the period that Director serves as a director of the Company or in a representative capacity at the request of the Company and thereafter so long as Director shall be subject to any possible claim or pending, threatened or completed proceeding by reason of the fact that Director was a director or served in any other representative capacity.

(b) In the event Director is required to bring any action to enforce his rights or to collect any amount due him under this Agreement and is successful in such action, the Company shall reimburse Director for all of Director’s fees and expenses (including, without limitation, reasonable attorney’s fees) in bringing and pursuing such action.

(c) Each of the provisions (including any provision within a single Paragraph or sentence) of this Agreement is a separate and distinct agreement and independent of the others, so that if any provision hereof shall be held to be invalid, illegal or unenforceable for any reason whatsoever, such invalidity or unenforceability shall not affect the validity or enforceability of the other provisions hereof and such remaining provisions shall remain enforceable to the fullest extent permitted by law.

(d) This Agreement shall be interpreted and enforced in accordance with the internal laws but not the law of conflicts of the State of Texas.

(e) This Agreement and the terms hereof shall be binding upon and inure to the benefit of the Company and Director, and their respective successors and assigns.

(f) No amendment, modification, termination or cancellation of this Agreement shall be effective unless in writing signed by both parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.

(g) The-indemnification provided by this Agreement shall not be deemed exclusive of any other rights to which Director may be entitled under any provision of the Act, the Articles of

Exhibit A, Page 3

Incorporation or bylaws of the Company or of any other corporation, or any other agreement or otherwise. To the extent that a change in the Act (whether by statute or judicial decision) permits greater indemnification by agreement than would be affording currently under the Company’s bylaws and this Agreement, it is the intent of parties hereto that Director shall enjoy by this Agreement the greater benefits so afforded by such change.

(h) All notices, demands or other communications to be given or delivered under or by reason of the provisions of this Agreement will be in writing and will be deemed to have been given when delivered personally or by cable, telex, facsimile transmission, telegram or overnight delivery service, or 72 hours after having been mailed by certified or registered mail, return receipt requested and postage prepaid, to the recipient. Such notices, demands and other communications will be sent to each party at the address indicated below:

If to the Director:

______________________________

______________________________

______________________________

______________________________

Facsimile:

Attn:

If to the Company:

Monitronics International, Inc.

12801 Stemmons Freeway

Suite 821

Dallas, TX 75234

Facsimile: (972) 919-1985

Attn: President

or to such other address or to the attention of such other Person as the recipient party has specified by prior written notice to the sending party.

Exhibit A, Page 4

IN WITNESS WHEREOF, the parties have executed this Agreement to be effective as of the Effective Date.

THE COMPANY:
MONITRONICS INTERNATIONAL, INC.
By:
	James R. Hull, President

EXHIBIT B TO SHAREHOLDERS AGREEMENT

ADDENDUM AGREEMENT TO FIFTH AMENDED

AND RESTATED SHAREHOLDERS AGREEMENT

This Addendum Agreement is executed on and effective as of                             , by and among                              (the “New Shareholder”), the New Shareholder’s Spouse (if any), and Monitronics International, Inc., a Texas corporation (the “Company”).

The Fifth Amended and Restated Shareholders Agreement dated May [    ], 2004 (the “Shareholders Agreement”) among the Company and certain shareholders of the Company provides that all persons prior to becoming shareholders of the Company must enter into an Addendum Agreement binding such person and such person’s spouse (if any) to the Shareholders Agreement to the same extent as if they were original parties thereto. Capitalized terms used herein but not otherwise defined shall have the meanings ascribed to them in the Shareholders Agreement.

Therefore, the New Shareholder and the spouse of the New Shareholder (if any) hereby agree to be bound by all terms and conditions of the Shareholders Agreement to the same extent as if they were original signatories to the Shareholders Agreement and were a [insert type of holder](*). This Addendum Agreement shall be attached to and become part of the Shareholders Agreement.

NEW SHAREHOLDER:

Signature

Spouse of New Shareholder

COMPANY:
MONITRONICS INTERNATIONAL, INC.
By:
	Title:

* In each case where the New Shareholder is a transferee of Company Securities from a party to the Shareholders Agreement, based upon the type of Company Security the New Shareholder has acquired, the New Shareholder shall be deemed either a Preferred Holder and/or a Common Shareholder with respect to each such Company Security. In all other cases, the New Shareholder shall be deemed a Common Shareholder.

EX-10.19

Exhibit 10.19

SECOND AMENDMENT

TO

SUBORDINATED NOTE AND WARRANT PURCHASE AGREEMENT

This Second Amendment to Subordinated Note and Warrant Purchase Agreement (this “Amendment”), dated as of July 14, 2004 (the “Effective Date”), amends that certain Subordinated Note and Warrant Purchase Agreement dated as of January 18, 2002, as amended by the First Amendment to Subordinated Note and Warrant Purchase Agreement dated August 25, 2003 (as so amended, the “Original Agreement”) between Monitronics International, Inc. (the “Company”) and The Northwestern Mutual Life Insurance Company (the “Purchaser”).

A. Pursuant to the Original Agreement, the Company issued and sold to the Purchaser 13.5% Subordinated Notes due 2009 in the aggregate principal amount of $40,000,000 (the “Notes”) and Common Stock Purchase Warrants to acquire up to an aggregate of 1,133,328 shares of Class A Common Stock, $.01 par value per share, of the Company.

B. On the date hereof, the Company and the holders of substantially all of the Company’s Capital Stock intend to engage in a series of transactions (collectively, the “Recapitalization”) pursuant to which, among other things, (i) the Company will amend its Organizational Documents to cancel its various existing series of Preferred Stock and create a new, single series of Preferred Stock, (ii) the Company’s principal shareholders will exchange their existing shares of Capital Stock of the Company for shares of the new series of Preferred Stock or for common stock of the Company and in connection therewith the Company will redeem certain existing shares of Preferred Stock for an aggregate redemption price of approximately $5,300,000 and (iii) two of the Company’s shareholders will sell shares of the Company’s common stock received in the shares exchange described above to two third parties.

C. As a condition to the Recapitalization Agreement and in connection with the consummation of the transactions contemplated thereby, the parties hereto desire to amend the Original Agreement and modify the terms of the Notes that will remain outstanding as hereinafter set forth.

NOW THEREFORE, in consideration of the premises and the agreements herein contained, and intending to be bound hereby, the parties hereby agree as follows:

1. Waivers.

1.01 Solely in connection with the Recapitalization, the Purchaser hereby waives the Company’s obligations under the following Sections of the Original Agreement: Section 7.02(c)(i); Section 7.02(f); Section 7.02(h) and Section 7.02(i).

2. Amendment of Original Agreement.

2.01 Section 1.01 of the Original Agreement shall be amended by adding the following defined terms:

“First Amendment” means the First Amendment to Credit Agreement dated as of the First Amendment Closing Date by and among the Company and the Banks party thereto, which amends the Loan Agreement.

“First Amendment Closing Date” means July 14, 2004.

“Stock Restriction Agreement” means a Restricted Stock Ownership Agreement between the Company or a Subsidiary of the Company and an employee thereof, in substantially the form of Exhibit A to this Amendment.

2.02 Clause (d) of the definition of “Fixed Charges” in Section 1.01 of the Original Agreement is hereby amended by adding the following provision at the end thereof:

“; provided, however, that the cash payments made to Windward Capital Partners II, L.P. and Windward Capital LP II, LLC as part of the Recapitalization (as defined in the First Amendment) shall not be considered a Fixed Charge”.

2.03 The definition of “Indebtedness” in Section 1.01 of the Original Agreement is hereby amended by adding the following parenthetical phrase at the end thereof:

“(it being understood that if mandatorily redeemable Preferred Stock is included within this definition and such Preferred Stock is mandatorily redeemable only upon the occurrence or satisfaction of specified conditions, such Preferred Stock shall not be considered mandatorily redeemable for the purposes of this clause unless such specified conditions have occurred or been satisfied).”

2.04 The definition of “NOI” in the Section 1.01 of the Original Agreement is hereby amended by adding the following provision at the end thereof:

“, plus (e) all transaction expenses paid by Borrower on a one-time basis in connection with the Recapitalization (as defined in the First Amendment).”

2.05 Section 7.02(c)(ii) of the Original Agreement is hereby amended by deleting the term “Effective Date” appearing therein and inserting in lieu thereof the term “First Amendment Closing Date”.

2.06 Section 7.02(f)(iii) of the Original Agreement is hereby amended by deleting the term “Effective Date” appearing therein and inserting in lieu thereof the term “First Amendment Closing Date”.

2.07 Section 7.02(f)(v) of the Original Agreement is hereby amended by (a) adding “and Common Stock” after the words Preferred Stock, (b) deleting the amount “Fifty Thousand Dollars ($50,000)” appearing therein and inserting in lieu thereof the amount “One Hundred Fifty Thousand Dollars ($150,000)” and (c) adding the following provision at the end thereof:

“; provided, however, that, in addition to any of the foregoing expenses, the Company may pay or reimburse out-of-pocket expenses incurred by securities holders in the Company to the extent any such expenses are incurred in connection with the

2

Recapitalization (as defined in the First Amendment), including without limitation expenses incurred by ABRY Partners IV, L.P. and/or Affiliates thereof in connection with filings made in accordance with the provisions of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and for reasonable out-of-pocket attorneys fees and expenses incurred by such entity or entities in connection therewith.”

2.08 Section 7.02(f) of the Original Agreement is hereby amended to add the following:

“(vi) redemptions of Capital Stock from employees of the Company or a Subsidiary of the Company pursuant to and in accordance with the terms of a Stock Restriction Agreement, provided that the aggregate amount of such redemptions in any fiscal year of the Company shall not exceed Fifty Thousand Dollars ($50,000),”

3. Representations and Warranties.

3.01 Registration Rights. Other than pursuant to the terms of the Fifth Amended and Restated Registration Agreement, dated July 14, 2004, by and among the Company and the Pledgors, the Warrant Agreement, dated November 10, 1994, between the Company and Heller Financial, Inc., the Affiliate Registration Agreement and the Registration Rights Agreement, dated August 25, 2003, among the Company, Banc of America Securities LLC and Fleet Securities, Inc., no Person has demand or other rights to cause the Company or any of its Subsidiaries to file any registration statement under the Securities Act relating to any securities of the Company or any of its Subsidiaries or any right to participate in any such registration statement.

3.02 Authorization, Validity and Enforceability. This Amendment has been duly authorized, executed and delivered by the Company and constitutes, and the Original Agreement, as amended by and through the date hereof, and the Notes constitute, legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, except as the enforcement hereof may be limited by applicable bankruptcy, insolvency or similar laws affecting the enforcement of rights of creditors generally and except to the extent that enforcement of rights and remedies set forth therein may be limited by equitable principles (regardless of whether enforcement is considered in a court of law or a proceeding in equity).

3.03 Representations and Warranties Incorporated from Loan Agreement. Each of the representations and warranties (and each associated schedule) given by the Company to the Banks in the Loan Agreement is true and correct in all material respects as of the First Amendment Closing Date.

3.04 Compliance. The Company is in compliance in all material respects with all of the terms and provisions set forth in the Original Agreement on its part to be observed or performed on or prior to the date of this Amendment.

3.05 No Material Adverse Effect. Since March 31, 2004, there has been no change in the assets or liabilities or in the financial or other condition of the Company or any of its Subsidiaries that could have a Material Adverse Effect.

3

4. Miscellaneous.

4.01 Effect. Except as amended hereby, the Original Agreement shall remain in full force and effect.

4.02 Defined Terms. All capitalized terms used but not specifically defined herein shall have the same meanings given such terms in the Original Agreement unless the context clearly indicates or dictates a contrary meaning.

4.03 Notices. All notices, requests, demands and other communications provided for in this Amendment shall be delivered in compliance with Section 9.03 of the Original Agreement.

4.04 Costs, Expenses, Taxes. The Company agrees to pay on demand all costs and expenses of the Purchaser in connection with the preparation, execution and delivery of this Amendment and other instruments and documents to be delivered hereunder.

4.05 Governing Law. This Amendment shall be governed by, and construed and enforced in accordance with, the internal laws of the State of New York.

4.06 Counterparts. This Amendment may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and each of the parties hereto may execute this Amendment by signing any of such counterparts.

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

4

IN WITNESS WHEREOF, the parties hereto have hereunto set their hands as of the date first above written.

THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
By:	/s/ David A. Barras
Name:	David A. Barras
Title:	Its Authorized Representative
MONITRONICS INTERNATIONAL, INC.
By:	/s/ James R. Hull
Name:	James R. Hull
Title:	President

Exhibit A

RESTRICTED STOCK OWNERSHIP AGREEMENT

This RESTRICTED STOCK OWNERSHIP AGREEMENT (the “Agreement”) is made as of January [4], 2002, by and between Monitronics International, Inc., a Texas corporation (the “Company”), and                     , an employee of the Company (the “Employee”).

WHEREAS, pursuant to this Agreement, the Company desires to transfer to the Employee                      shares (the “Shares”) of the Company’s Class A Common Stock, $0.01 par value, per share (the “Common Stock”) which shares shall be subject to certain restrictions as set forth herein and shall be herein referred to as the “Restricted Shares”; and

WHEREAS, Company and Employee desire to enter into this Agreement to provide for restrictions on transfer and forfeiture of the Restricted Shares prior to the vesting of such Restricted Shares and removal of such forfeiture restrictions upon vesting of the Restricted Shares.

NOW, THEREFORE, in consideration of the foregoing recitals and the mutual covenants and agreements set forth herein, together with other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

1. Purchase of Restricted Shares. Concurrently with execution of this Agreement, Employee has purchased the Restricted Shares and paid the purchase price of $0.01 per share (the “Purchase Price”). Concurrently with execution of this Agreement and payment of the Purchase Price, Employee shall also execute and deliver to Company an executed blank Stock Power of Attorney in the form attached hereto as Exhibit “A” with respect to the Restricted Shares.

2. Repurchase Right.

2.1 Grant. Employee hereby grants to Company the right (the “Repurchase Right”) exercisable at any time during the 180-day period following the date Employee’s employment by Company is terminated for any reason, to repurchase at the Purchase Price all or any portion of the Restricted Shares in which Employee is not, at the time of his or her termination of employment, vested in accordance with the Vesting Schedule described in Section 2.3 and set forth in the form attached hereto as Exhibit “B” (such shares to be hereinafter referred to as the “Unvested Shares”).

2.2 Exercise of the Repurchase Right. The Repurchase Right shall be exercisable by written notice delivered to Employee prior to the expiration of the 180-day exercise period. The notice shall indicate the number of Unvested Shares to be repurchased and the date on which the repurchase is to be effected, such date to be not more than 30 days after the date of such notice. The certificates representing the Unvested Shares to be repurchased shall be delivered to Company prior to the close of business on the date specified for the repurchase. Concurrently with the receipt of such stock certificates, Company shall pay to Employee, in cash or cash equivalents (including the cancellation of any purchase-money indebtedness), an amount

Exhibit A-1

equal to the Purchase Price previously paid for the Unvested Shares which are to be repurchased from Employee.

2.3 Termination of the Repurchase Right. The Repurchase Right shall terminate with respect to any Unvested Shares for which it is not timely exercised under Section 2.2. In addition, the Repurchase Right shall terminate and cease to be exercisable with respect to any and all Unvested Shares in which Participant vests in accordance with the Vesting Schedule set forth in Exhibit B.

Notwithstanding the foregoing, the Unvested Shares shall become fully vested and shall no longer be subject to the Repurchase Right upon a “Change of Control.” For purposes of this Agreement, a “Change of Control” shall have the meaning set forth in Section 10.2.

2.4 Recapitalization. Any new, substituted or additional securities or other property (including cash paid other than as a regular cash dividend) which is by reason of any “Recapitalization” distributed with respect to the Unvested Shares shall be immediately subject to the Repurchase Right, but only to the extent the Unvested Shares are at the time covered by such right. Appropriate adjustments to reflect such distribution shall be made to the number and/or class of Unvested Shares subject to this Agreement and to the price per share to be paid upon the exercise of the Repurchase Right in order to reflect the effect of any such Recapitalization upon Company’s capital structure; provided, however, that the aggregate purchase price shall remain the same. For purposes of this Agreement, a “Recapitalization” shall mean any stock split, stock dividend, recapitalization, reorganization, combination of shares, exchange of shares, or other change affecting the outstanding Common Stock as a class without the Company’s receipt of consideration.

2.5 Corporate Transaction.

(a) The Repurchase Right shall be assignable by Company to any successor entity of Company in a merger or consolidation, share exchange, or sale, transfer or other disposition of all or substantially all of the Company’s assets in complete liquidation or dissolution of the Company; subject, however, to termination on the Repurchase Right in accordance with Section 2.3 if a Change of Control has occurred as a result thereof. However, to the extent the successor entity does not accept such assignment, the Repurchase Right shall lapse immediately prior to the consummation of the transaction with such successor entity.

(b) To the extent the Repurchase Right remains in effect following any such transaction, such right shall apply to the new capital stock or other property (including any cash payments) received in exchange for the Unvested Shares in consummation of such transaction, but only to the extent the Unvested Shares are at the time covered by such right. Appropriate adjustments shall be made to the price per share payable upon exercise of the Repurchase Right to reflect the effect of such transaction upon Company’s capital structure; provided, however, that the aggregate purchase price shall remain the same.

3. Delivery of Certificates. The certificates representing any Restricted Shares which are subject to the Repurchase Right shall be held in escrow in accordance with the provisions of this Agreement.

4. Shareholder Rights. Until such time as the Company exercises the Repurchase Right, Employee (or any permitted successor in interest) shall have all the rights of a shareholder (including voting, dividend and liquidation rights) with respect to the Restricted Shares, subject, however, to the transfer restrictions of Sections 5.2 and 6.

5. Securities Law Compliance.

5.1 Restricted Securities. The Shares have not been registered under the Securities Act of 1933, as amended (the “1933 Act”), and are being issued to Employee in reliance upon the exemption from such registration provided by, among other exemptions, the nonpublic offering exemption provided by Section 4(2) of the 1933 Act and, therefore, are subject to restrictions on further transfer under the 1933 Act. Employee hereby confirms that Employee has been informed that the Shares are restricted securities under the 1933 Act and may not be resold or transferred unless the Shares are first registered under the Federal securities laws or unless an exemption from such registration is available. Accordingly, Employee hereby acknowledges that Employee is prepared to hold the Shares for an indefinite period and that Employee is aware that Rule 144 issued under the 1933 Act which exempts certain resales of unrestricted securities is not presently available to exempt the resale of the Shares from the registration requirements of the 1933 Act.

5.2 Disposition of Shares. Employee shall make no disposition of the Shares, which are not subject to the Repurchase Right, unless and until there is compliance with all of the following requirements:

(a) Employee shall have provided Company with a written summary of the terms and conditions of the proposed disposition.

(b) Employee shall have complied with all requirements of this Agreement applicable to the disposition of the Shares.(c) Employee shall have provided Company with written assurances, in form and substance satisfactory to Company, that 1. the proposed disposition does not require registration of the Shares under the 1933 Act or 2. all appropriate action necessary for compliance with the registration requirements of the 1933 Act or any exemption from registration available under the 1933 Act (including Rule 144) has been taken.

Company shall not be required (A) to transfer on its books any Shares which have been sold or transferred in violation of the provisions of this Agreement or (B) to treat as the owner of the Shares, or otherwise to accord voting, dividend or liquidation rights to, any transferee to whom the Shares have been transferred in contravention of this Agreement.

5.3 Restrictive Legends. The stock certificates for all the Shares shall be endorsed with the legend set forth in subsection (a) below, and the stock certificates for the Restricted Shares shall be endorsed with the legend set forth in subsection (b) below:

(a) “The shares represented by this certificate have not been registered under the Securities Act of 1933. The shares may not be sold or offered for sale in the absence of 3. an effective registration statement for the shares under such Act, 4. a “no action” letter of the Securities and Exchange Commission with respect to such sale or offer or 5. satisfactory

assurances to the Company that registration under such Act is not required with respect to such sale or offer.”

(b) “The shares represented by this certificate are unvested and are subject to certain repurchase rights granted to the Company and accordingly may not be sold, assigned, transferred, encumbered, or in any manner disposed of except in conformity with the terms of a written agreement dated January [4], 2002 between the Company and the registered holder of the shares (or the predecessor in interest to the shares). A copy of such agreement is maintained at the Company’s principal corporate offices.”

6. Additional Transfer Restrictions. Notwithstanding any other provision of this Agreement, the Employee shall not transfer, assign, encumber or otherwise dispose of any of the Restricted Shares which are subject to the Repurchase Right.

7. Escrow.

7.1 Deposit. Upon issuance, the certificates for the Restricted Shares which are subject to the Repurchase Right shall be deposited in escrow with the Company to be held in accordance with the provisions of this Section 7. Each deposited certificate shall be accompanied by a duly-executed Stock Power of Attorney in the form of Exhibit “A.” The deposited certificates, together with any other assets or securities from time to time deposited with Company pursuant to the requirements of this Agreement, shall remain in escrow until such time or times as the certificates (or other assets and securities) are to be released or otherwise surrendered for cancellation in accordance with 7.3. Upon delivery of the certificates (or other assets and securities) to Company, Employee shall be issued a receipt acknowledging the number of Restricted Shares (or other assets and securities) delivered in escrow.

7.2 Recapitalization Reorganization. Any new, substituted or additional securities or other property which is by reason of any Recapitalization as contemplated under Section 2.4, distributed with respect to the Restricted Shares shall be immediately delivered to Company to be held in escrow under this Section 7, but only to the extent the Restricted Shares are at the time subject to the escrow requirements hereunder. However, all regular cash dividends on the Restricted Shares (or other securities at the time held in escrow) shall be paid directly to Employee and shall not be held in escrow.

7.3 Release/Surrender. The Restricted Shares, together with any other assets or securities held in escrow hereunder, shall be subject to the following terms relating to their release from escrow or their surrender to Company for repurchase and cancellation:

(a) Should Company elect to exercise the Repurchase Right with respect to any Unvested Shares, then the escrowed certificates for those Unvested Shares (together with any other assets or securities attributable thereto) shall be surrendered to Company concurrently with the payment to Employee of an amount equal to the aggregate Purchase Price paid for those Unvested Shares, and Employee shall cease to have any further rights or claims with respect to such Unvested Shares (or other assets or securities attributable thereto).

(b) Should Company elect not to exercise the Repurchase Right with respect to any Unvested Shares held at the time in escrow hereunder, then the escrowed

certificates for those shares (together with any other assets or securities attributable thereto) shall be immediately released to Employee.

(c) As the Unvested Shares (or any other assets or securities attributable thereto) vest in accordance with the Vesting Schedule described in Section 2.3 and set forth in Exhibit “B,” the certificates for those vested shares (as well as all other vested assets and securities) shall be released from escrow upon Employee’s request, but not more frequently than once every six months.

(d) All Unvested Shares which vest (and any other vested assets and securities attributable thereto) shall be released within 30 days after the termination of Employee’s employment with Company for any reason.

8. Special Tax Election.

8.1 Section 83(b) Election. Under section 83 of the Internal Revenue Code of 1986 (the “Code”), the excess of the fair market value of the Shares on the date any forfeiture restrictions applicable to such shares lapse over the Purchase Price paid for such shares will be reportable as ordinary income on the lapse date. For this purpose, the term “forfeiture restrictions,” among other things, includes the right of Company to repurchase the Unvested Shares pursuant to the Repurchase Right. Employee may elect under section 83(b) of the Code to be taxed at the time the Shares are acquired, rather than when and as such Shares cease to be subject to such forfeiture restrictions. Such election must be filed with the Internal Revenue Service within 30 days after the date of this Agreement. Regardless of whether the fair market value of the Shares on the date of this Agreement exceeds the Purchase Price paid, the election must be made to avoid adverse tax consequences in the future. THE FORM FOR MAKING THIS ELECTION IS ATTACHED AS EXHIBIT “C” HERETO. EMPLOYEE UNDERSTANDS THAT FAILURE TO MAKE TO MAKE THIS FILING WITHIN THE APPLICABLE 30-DAY PERIOD WILL RESULT IN THE RECOGNITION OF ORDINARY INCOME AS THE FORFEITURE RESTRICTIONS LAPSE.

8.2 Filing Responsibility. EMPLOYEE ACKNOWLEDGES THAT IT IS EMPLOYEE’S SOLE RESPONSIBILITY, AND NOT COMPANY’S, TO FILE A TIMELY ELECTION UNDER SECTION 83(b) OF THE CODE, EVEN IF EMPLOYEE REQUESTS COMPANY OR ITS REPRESENTATIVES TO MAKE THIS FILING ON HIS OR HER BEHALF. EMPLOYEE FURTHER ACKNOWLEDGES THAT THE COMPANY RECOMMENDS THAT EMPLOYEE CONSULT WITH A TAX PROFESSIONAL BEFORE MAKING AN ELECTION UNDER SECTION 83(b) OF THE CODE.

9. Miscellaneous.

9.1 Assignment. Company may assign the Repurchase Right to any person or entity selected by the Board.

9.2 No Employment or Service Contract. Nothing in this Agreement shall confer upon Employee any right to continue in the employment of Company for any period of specific duration or interfere with or otherwise restrict in any way the rights of Company (or any parent or subsidiary employing or retaining Employee) or of Employee, which rights are hereby

expressly reserved by each, to terminate Employee’s employment with Company at any time for any reason, with or without cause.

9.3 Notices. Any notice required to be given under this Agreement shall be in writing and shall be deemed effective upon personal delivery or upon deposit in the U.S. mail, registered or certified, postage prepaid and properly addressed to the party entitled to such notice at the address indicated below such party’s signature line on this Agreement or at such other address as such party may designate by ten days advance written notice under this paragraph to all other parties to this Agreement.

9.4 No Waiver. The failure of Company in any instance to exercise the Repurchase Right shall not constitute a waiver of any other repurchase rights that may subsequently arise under the provisions of this Agreement or any other agreement between Company and Employee. No waiver of any breach or condition of this Agreement shall be deemed to be a waiver of any other or subsequent breach or condition, whether of like or different nature.

9.5 Cancellation of Shares. If Company shall make available, at the time and place and in the amount and form provided in this Agreement, the consideration for the Restricted Shares to be repurchased in accordance with the provisions of this Agreement, then from and after such time, the person from whom such shares are to be repurchased shall no longer have any rights as a holder of such shares (other than the right to receive payment of such consideration in accordance with this Agreement). Such shares shall be deemed purchased in accordance with the applicable provisions hereof, and Company shall be deemed the owner and holder of such shares, whether or not the certificates therefor have been delivered as required by this Agreement.

9.6 Undertaking. Employee hereby agrees to take whatever additional action, including the furnishing of information to the Company, and execute whatever additional documents Company may deem necessary or advisable in order to carry out or effect one or more of the obligations or restrictions imposed on either Employee or the Restricted Shares pursuant to the provisions of this Agreement.

9.7 Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Texas without resort to that State’s conflict-of-laws rules.

9.8 Successors and Assigns. The provisions of this Agreement shall inure to the benefit of, and be binding upon, Company and its successors and assigns and upon Employee, Employee’s assigns and the legal representatives, heirs and legatees of Employee’s estate, whether or not any such person shall have become a party to this Agreement and have agreed in writing to join herein and be bound by the terms hereof.

9.9 Administration. The Company retains administration rights with respect to this Agreement. These rights include the discretion to i. adopt, amend, and rescind administrative and interpretive rules and regulations relating to the Agreement; ii. construe the

Agreement; and iii. delegate its duties hereunder to such agents as it may appoint from time to time.

9.10 Taxes. The Company may from time to time, in its discretion, require Employee to pay to the Company, the amount that the Company deems necessary to satisfy the Company’s current or future obligation to withhold federal, state or local income or other taxes that Employee incurs as a result of this Agreement. With respect to any required tax withholding, Employee may iv. direct the Company to withhold from the shares of Common Stock to be issued to Employee the number of shares necessary to satisfy the Company’s obligation to withhold taxes, that determination to be based on the shares’ fair market value at the time as of which such determination is made; v. deliver to the Company sufficient shares of Common Stock to satisfy the Company’s tax withholding obligations, based on the shares’ fair market value at the time as of which such determination is made; or vi. deliver sufficient cash to the Company to satisfy its tax withholding obligations. If Employee elects to use such a stock withholding feature, Employee must make the election at the time and in the manner that the Company prescribes. The Company may, at its sole option, deny Employee’s request to satisfy withholding obligations through Common Stock instead of cash. In the event the Company subsequently determines that the aggregate fair market value of any shares of Common Stock withheld as payment of any tax withholding obligation is insufficient to discharge that tax withholding obligation, then Employee shall pay to the Company, immediately upon the Company’s request, the amount of that deficiency. Determination of the Common Stock’s fair market value shall be made in good faith by the Company.

9.11 Amendments. The Company may amend, alter, suspend, discontinue or terminate this Agreement; provided that, without the consent of Employee, no such Company action may materially and adversely affect the rights of Employee under this Agreement without Employee’s consent.

9.12 Severability. If any provision of this Agreement is held to be illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining provisions hereof, but such provision shall be fully severable and the Agreement shall be construed and enforced as if the illegal or invalid provision had never been included herein.

9.13 No Liability for Good Faith Determinations. The Company and the members of the Board shall not be liable for any act, omission or determination taken or made in good faith with respect to this Agreement or the Restricted Shares granted hereunder.

9.14 No Guarantee of Interests. The Board and the Company do not guarantee the Common Stock of the Company from loss or depreciation.

10. Definitions.

10.1 Board means the Company’s Board of Directors.

10.2 Change in Control means the event that is deemed to have occurred if: i. the Company shall not be the surviving entity in any merger or consolidation (or survives only as a Subsidiary of an entity other than a previously wholly owned subsidiary of the Company), ii. the Company sells, leases or exchanges or agrees to sell, lease or exchange all or substantially all

of its assets to any other person or entity (other than a wholly-owned subsidiary of the Company), iii. the Company is to be dissolved and liquidated, or iv. any person or entity, including a “group” as contemplated by Section 13(d)(3) of the Exchange Act (other than any stockholder or holder of warrants or options to acquire capital stock of the Company on the date hereof), acquires or for the first time controls or is able to vote (directly or through nominees or beneficial ownership) after the date hereof (other than as the direct result of a transfer by descent or distribution of a decedent’s estate) fifty percent (50%) or more of the deemed issued and outstanding stock of the Company having power ordinarily to vote for directors of the Company (on a fully-diluted, as converted basis).

10.3 Exchange Act means the Securities Exchange Act of 1934, as amended from time to time, including rules thereunder and successor provisions and rules thereto.

10.4 Person means any person or entity of any nature whatsoever, specifically including an individual, a firm, a company, a corporation, a partnership, a trust or other entity; a Person, together with that Person’s “Affiliates” and “Associates” (as those terms are defined in Rule 12b-2 under the Exchange Act), and any Persons acting as a partnership, limited partnership, joint venture, association, syndicate or other group (whether or not formally organized), or otherwise acting jointly or in concert or in a coordinated or consciously parallel manner (whether or not pursuant to any express agreement), for the purpose of acquiring, holding, voting or disposing of securities of the Company with such Person, shall be deemed a single “Person.”

10.5 Subsidiary means with respect to any Person, any corporation or other entity of which a majority of the voting power of the voting equity securities or equity interest is owned, directly or indirectly, by that Person.

IN WITNESS WHEREOF, the parties have executed this Agreement on the date first indicated above.

COMPANY:

MONITRONICS INTERNATIONAL, INC.

By:

Name:

Title:

EMPLOYEE:

By:

Name:

Title:

(Address)

SPOUSAL ACKNOWLEDGEMENT

The undersigned spouse of Employee has read and hereby approves the foregoing Restricted Stock Ownership Agreement. In consideration of Company granting Employee the right to acquire the Shares in accordance with the terms of such Agreement and the Stock Option Agreement, the undersigned hereby agrees to be irrevocably bound by all the terms of such Restricted Stock Ownership Agreement, including (without limitation) the right of Company’s (or its assignee) to purchase any Restricted Shares in which Employee is not vested.

By:

Name:

(Address)

EXHIBIT A

STOCK POWER OF ATTORNEY

FOR VALUE RECEIVED, the undersigned does hereby transfer to             ,              shares (the “Shares”) of the common stock, par value $0.01 per share, of Monitronics International, Inc., a Texas corporation (the “Company”), represented by certificate numbers              through              standing in the name of the undersigned on the books of said Company, and does hereby irrevocably appoint              attorney to transfer the said Shares of stock on the books of said Company, with full power of substitution in the premises.

Effective as of:                     

By:

Name:

EXHIBIT B

VESTING SCHEDULE

VESTING DATES NUMBER OF UNVESTED SHARES VESTING

EXHIBIT C

INTERNAL REVENUE CODE SECTION 83(B) ELECTION FORM

I. Directions

To effectuate an election pursuant to section 83(b) of the Internal Revenue Code of 1986, as amended (the “Code”):

A. Fill in any omitted information on this election form (the “Form”);

B. Sign and date the Form before a notary public and return one copy of the Form to:

Mike Meyers

12801 Stemmons Freeway

Suite 821

Dallas, Texas 75234

C. Mail a copy of the Form to the Service Center where you file your Internal Revenue Service tax return WITHIN 30 DAYS OF RECEIPT OF THE PROPERTY; and

D. Attach one copy of the Form to your income tax return for calendar year 2002.

II. Code Section 83(b) Election

A. Taxpayer Information

1. Name:                 

2. Address:                 

3. Taxpayer identification number:             

B. Property Description

________________________________

________________________________

________________________________

________________________________

________________________________

C. Date and Taxable Year of Transfer

1. Property transfer date: January [4] 2002

2. The taxable year in which property was transferred: Calendar year 2002

D. The nature of the restriction to which the property is subject

The property is subject to a repurchase right of the Company which terminates as the shares vest as set forth below:

                        [Fill in vesting schedule]

                        _____________________

                        _____________________

E. Property Valuation

1. Fair market value of property at time of transfer (determined without regard to restrictions that will lapse, including any substantial risk of forfeiture restrictions): $0.01 per share

2. Amount paid for property: $0.01 per share

3. Excess of fair market value over the amount paid: $0

F. Attestation

I elect under section 83(b) of the Code to have $0 included in my ordinary compensation income for taxable year ending December 31, 2002 with respect to the transfer of the above described property. This amount represents the excess of the fair market value of the property at the time of transfer over the amount paid for such property. I have furnished my employer, for whom services were performed in connection with the transfer of the property, with a copy of this statement. I am the recipient of the above described property and therefore need not inform a third party transferee of this election.

SIGNED:                                      DATE:                 

Signature of Taxpayer

On this              day of             , 200  , before me, a Notary Public in and for              STATE

and,                                     , personally appeared                                     , acknowledging the

COUNTY                                         TAXPAYER

foregoing election to be his act and deed and desires that the same may be recorded as such.

Witness my hand and notarial seal the day and year first above written.

Notary Public

My Commission Expires:

__________________________

NOTE: If you make an election pursuant to this Form, copies of the Form must be:

1. Mailed within 30 days of receipt of the property to the Service Center where you file your Internal Revenue Service tax return;

2. Provided to the representative of the entity for which you performed services as discussed above;

3. Attached to your income tax return for the year of transfer.

EX-10.40

Exhibit 10.40

STOCK PURCHASE AGREEMENT

This Stock Purchase Agreement (this “Agreement”), is entered into as of July 14, 2004, by and among Monitronics International, Inc., a Texas corporation (the “Company”), New York Life Capital Partners II, L.P., a Delaware limited partnership (“NY Life”), PPM America Private Equity Fund LP, a Delaware limited partnership (“PPM,” together with NY Life, each a “Purchaser” and collectively the “Purchasers”), Windward Capital Partners II, L.P., a Delaware limited partnership (“Windward LP”), and Windward Capital LP II, LLC, a Delaware limited liability company (“Windward LLC,” and together with Windward LP, each a “Shareholder” and collectively the “Shareholders”).

RECITALS

A. The Company desires to enter into a series of transactions (the “Recapitalization”) pursuant to which it will change the capital structure of the Company and in connection therewith has entered into a Recapitalization Agreement, dated July 14, 2004, with the security holders named therein (the “Recapitalization Agreement”).

B. In the Recapitalization, subject to the terms and conditions of the Recapitalization Agreement, the Shareholders will exchange their shares of the Company’s Series C Preferred Stock, $0.01 par value, and Series C-1 Preferred, $0.01 par value, for an aggregate of 8,333,333 shares of the Company’s Class A Common Stock, $0.01 par value (the “Shares”), and $5,609,989.40 in cash.

C. In conjunction with the Recapitalization, the Shareholders desire to sell and convey to each Purchaser the number of Shares set forth opposite such Purchaser’s name on Schedule 1 hereto, and each Purchaser desires to purchase and acquire the Shares from the Shareholders pursuant to the terms and conditions hereof.

D. The execution and delivery of this Agreement is a condition precedent to the Recapitalization as provided in the Recapitalization Agreement.

NOW, THEREFORE, in consideration of these premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

1. Sale and Purchase of the Shares.

(a) Sale and Purchase of the Shares. In reliance upon the representations, warranties, covenants and agreements contained herein and upon the terms and subject to the conditions hereinafter set forth, at the Closing (as defined in Section 2(a)), (i) Windward LP shall sell, assign, transfer and convey to NY Life the number of Shares indicated on Schedule 1 hereto (the “NY Life/Windward LP Shares”) and NY Life shall purchase from Windward LP such NY Life/Windward LP Shares; (ii) Windward LLC shall sell, assign, transfer and convey to NY Life the number of Shares indicated on Schedule 1 hereto (the “NY Life/Windward LLC Shares”) and NY Life shall purchase from Windward LLC such NY Life/Windward LLC Shares; (iii) Windward LP shall sell, assign, transfer and convey to PPM the number of Shares indicated on Schedule I hereto (the “PPM/Windward LP Shares”) and PPM shall purchase from Windward

LP such PPM/Windward LP Shares and (iv) Windward LLC shall sell, assign, transfer and convey to PPM the number of Shares indicated on Schedule 1 hereto (the “PPM/Windward LLC Shares”) and PPM shall purchase from Windward LLC such PPM/Windward LLC Shares.

(b) Amount and Form of Consideration. The consideration to be paid at the Closing by NY Life to Windward LP in consideration of the purchase of the NY Life/Windward LP Shares shall be an aggregate amount in cash equal to $28,443,600 (the “NY Life/Windward LP Purchase Price”). The consideration to be paid at the Closing by NY Life to Windward LLC in consideration of the purchase of the NY Life/Windward LLC Shares shall be an aggregate amount in cash equal to $1,556,400 (the “NY Life/Windward LLC Purchase Price”). The consideration to be paid at the Closing by PPM to Windward LP in consideration of the purchase of the PPM/Windward LP Shares shall be an aggregate amount in cash equal to $18,962,400 (the “PPM/Windward LP Purchase Price”). The consideration to be paid at the Closing by PPM to Windward LLC in consideration of the purchase of the PPM/Windward LLC Shares shall be an aggregate amount in cash equal to $1,037,598 (the “PPM/Windward LLC Purchase Price”).

(c) Capitalization. The Company represents and warrants to each Purchaser and Shareholder that the capitalization of the Company immediately prior to the Closing is as set forth on Exhibit A hereto. The Company represents and warrants to each Purchaser and Shareholder that the capitalization of the Company immediately after the Closing and the consummation of the Recapitalization shall be as set forth on Exhibit B hereto.

2. The Closing.

(a) Closing Date. The closing of the purchase and sale of the Shares (the “Closing”) shall be held at the offices of Vinson & Elkins L.L.P., 3700 Trammell Crow Center, 2001 Ross Avenue, Dallas, Texas 75201 simultaneously with, but shall be deemed to occur immediately after, the closing of the Recapitalization as provided in the Recapitalization Agreement. The date of the Closing is referred to herein as the “Closing Date.”

(b) Method and Timing of Payment. At the Closing, (i) NY Life will pay to Windward LP the NY Life/Windward LP Purchase Price by wire transfer of immediately available funds to an account designated in writing by Windward LP, (ii) NY Life will pay to Windward LLC the NY Life/Windward LLC Purchase Price by wire transfer of immediately available funds to an account designated in writing by Windward LLC, (iii) PPM will pay Windward LP the PPM/Windward LP Purchase Price by wire transfer of immediately available funds to an account designated in writing by Windward LP and (iv) PPM will pay Windward LLC the PPM/Windward LLC Purchase Price by wire transfer of immediately available funds to an account designated in writing by Windward LLC.

(c) Deliveries by the Company, the Shareholders and the Purchasers.

(i) At the Closing, the Company shall deliver to each Purchaser an opinion from counsel to the Company, in form and substance reasonably satisfactory to the Purchasers, dated the Closing Date, substantially in the form attached hereto as Exhibit C.

(ii) At the Closing, Windward LP shall deliver to NY Life the certificates representing the NY Life/Windward LP Shares being transferred to NY Life by

2

Windward LP, free and clear of any lien, pledge or security interest, except for those imposed by the Credit Agreement, dated as of August 25, 2003, by and among the Company and the several banks and other lender parties thereto (the “Credit Agreement”), together with separate stock powers duly endorsed in blank, and any other documents that in the reasonable judgment of NY Life are necessary to NY Life’s good and valid title to the NY Life/Windward LP Shares.

(iii) At the Closing, Windward LP shall deliver to PPM the certificates representing the PPM/Windward LP Shares being transferred to PPM by Windward LP, free and clear of any lien, pledge or security interest, except for those imposed by the Credit Agreement, together with separate stock powers duly endorsed in blank, and any other documents that in the reasonable judgment of PPM are necessary to PPM’s good and valid title to the PPM/Windward LP Shares.

(iv) At the Closing, Windward LLC shall deliver to NY Life the certificates representing the NY Life/Windward LLC Shares being transferred to NY Life by Windward LLC, free and clear of any lien, pledge or security interest, except for those imposed by the Credit Agreement, together with separate stock powers duly endorsed in blank, and any other documents that in the reasonable judgment of NY Life are necessary to NY Life’s good and valid title to the NY Life/Windward LLC Shares.

(v) At the Closing Windward LLC shall deliver to PPM the certificates representing the PPM/Windward LLC Shares being transferred to PPM by Windward LLC, free and clear of any lien, pledge or security interest, except for those imposed by the Credit Agreement, together with separate stock powers duly endorsed in blank and any other documents that in the reasonable judgment of PPM are necessary to PPM’s good and valid title to the PPM/Windward LLC Shares.

(vi) At the Closing, each Purchaser shall deliver to Fleet National Bank, as Administrative Agent for the lenders from time to time a party to the Credit Agreement, an executed counterpart of the Amended and Restated Pledge Agreement, dated as of the Closing (the “Pledge Agreement,”), and the Amended and Restated Affiliate Subordination Agreement, dated as of the Closing (the “Subordination Agreement,” and together with this Agreement and the Pledge Agreement, the “Transaction Documents”), together with the stock certificates representing the Shares issued to such Purchaser and stock powers duly endorsed in blank.

(vii) At the Closing, NY Life shall deliver:

A. the NY Life/Windward LP Purchase Price to Windward LP; and

B. the NY Life/Windward LLC Purchase Price to Windward LLC.

(viii) At the Closing, PPM shall deliver:

A. the PPM/Windward LP Purchase Price to Windward LP; and

B. the PPM/Windward LLC Purchase Price to Windward LLC.

3

3. Purchaser’s Representations and Warranties.

Each Purchaser hereby represents and warrants, as to itself only and not with respect to any other Purchaser, to the Company and each Shareholder as follows:

(a) Organization. Purchaser has been duly organized and is validly existing as a limited partnership in good standing under the laws of the jurisdiction in which it is organized.

(b) Authorization; Enforcement. Purchaser has all requisite power and authority to authorize, execute, deliver and perform each Transaction Document. The execution, delivery and performance by Purchaser of each Transaction Document, and the consummation by Purchaser of the transactions contemplated thereby, has been duly authorized by all necessary limited partnership action on the part of Purchaser, and no further consent or authorization thereafter is presently required by Purchaser. Each Transaction Document has been duly and validly executed and delivered by Purchaser and, assuming the due authorization, execution and delivery by the other parties thereto, constitutes the valid and binding obligation of Purchaser, enforceable against Purchaser in accordance with its respective terms, except to the extent that the enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws generally affecting creditors’ rights and by equitable principles regardless of whether enforcement is sought in equity or at law.

(c) No Conflicts. The execution and delivery of each Transaction Document by Purchaser do not, and the performance by Purchaser of its obligations thereunder will not, constitute a violation of, conflict with or result in a default in any material respect under any contract to which Purchaser is a party or by which Purchaser is bound or any judgment, decree or order applicable to Purchaser.

(d) No Violations. Neither the execution and delivery of any Transaction Document, nor the performance by Purchaser of its obligations thereunder, will violate in any material respect any provision of law applicable to Purchaser.

(e) Consents; Approvals. Neither the execution, delivery or performance by Purchaser of any Transaction Document, nor the consummation by it of the obligations and transactions contemplated thereby, requires any consent or approval of, authorization by, exemption from, filing with or notice to any national, federal, state, municipal, local, territorial, foreign or other government or any department, commission, board, bureau, agency, exchange, regulatory authority or instrumentality thereof, or any court, judicial, administrative or arbitral body or public or private tribunal (each, a “Governmental Entity”) or any other individual, corporation, partnership, joint venture, trust, unincorporated organization, limited liability company or partnership, or a government or any agency or political subdivision thereof (each, a “Person”).

(f) Acquisition for Own Account. Purchaser is acquiring the Shares for its own account, for investment and not with a view toward distribution in a manner which would violate the Securities Act of 1933 (the “Securities Act”); provided, however, that by making the representations herein, Purchaser does not agree to hold any of the Shares for any minimum or other specific term and reserves the right to dispose of such shares at any time, subject to the

4

transfer restrictions contained in the Fifth Amended and Restated Shareholders Agreement, dated as of the Closing Date (the “Shareholders Agreement”), by and among the Company and the Shareholders (as defined therein) and in accordance with or pursuant to an effective registration statement under the Securities Act or in a transaction exempt from or not subject to the registration requirements of the Securities Act.

(g) Access to Information. Purchaser acknowledges that it has reviewed and discussed the Company’s business and affairs with such officers of the Company and others as it has deemed appropriate or desirable in connection with the transactions contemplated by this Agreement. Purchaser further acknowledges that it has requested, received and reviewed such information, undertaken such investigation and made such further inquiries of officers of the Company and others as it has deemed appropriate or desirable in connection with such transactions.

(h) Brokers. There is no broker, investment banker, financial advisor, finder or other Person which has been retained by or is authorized to act on behalf of the Purchaser who might be entitled to any fee or commission for which the Company, the Purchasers or the Shareholders will be liable in connection with the execution, delivery or performance by the Purchaser of this Agreement.

(i) Legends. Purchaser hereby acknowledges that each certificate representing the Shares and any other securities issued in respect of such Shares upon any stock split, stock dividend, recapitalization, merger or similar event (unless no longer required in the written opinion of counsel, which opinion of counsel shall be reasonably satisfactory to the Company, it being agreed that Vinson & Elkins L.L.P., Kirkland & Ellis LLP, Jenkens & Gilchrist, P.C., Arnold & Porter LLP or Testa, Hurwitz & Thibeault, LLP shall be satisfactory) shall bear a legend substantially in the following form:

THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD OR TRANSFERRED WITHOUT COMPLIANCE WITH THE REGISTRATION OR QUALIFICATION PROVISIONS OF APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR APPLICABLE EXEMPTIONS THEREFROM.

(j) Benefit Plan Investor Status. Either Purchaser is not a “benefit plan investor” (as such term is defined in 29 C.F.R. 2510.3-101(f)(2)) or, if Purchaser is a benefit plan investor, the plan participants are not permitted to decide whether or how much to invest in particular investment alternatives, and if Purchaser is a collective investment vehicle, the plans participating therein do not direct the specific investments made by Purchaser.

4. Shareholder’s Representations and Warranties.

Each Shareholder hereby represents and warrants, as to itself only and not with respect to any other Shareholder, to the Company and each Purchaser as follows:

(a) Organization. Shareholder has been duly organized and is validly existing as a limited partnership or limited liability company in good standing under the laws of the jurisdiction in which it is chartered or organized.

5

(b) Authorization; Enforcement. Shareholder has all requisite power and authority to authorize, execute, deliver and perform this Agreement. The execution, delivery and performance by Shareholder of this Agreement, and the consummation by Shareholder of the transactions contemplated hereby, have been duly authorized by all necessary limited partnership or limited liability company action on the part of Shareholder, and no further consent or authorization thereafter is presently required by Shareholder. This Agreement has been duly and validly executed and delivered by Shareholder and, assuming the due authorization, execution and delivery by the other parties hereto, constitutes the valid and binding obligation of Shareholder, enforceable against Shareholder in accordance with its terms, except to the extent that the enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws generally affecting creditors’ rights and by equitable principles regardless of whether enforcement is sought in equity or in law.

(c) No Conflicts. The execution and delivery of this Agreement by Shareholder do not, and the performance by Shareholder of its obligations hereunder will not, constitute a violation of, conflict with or result in a default in any material respect under any contract to which Shareholder is a party or by which Shareholder is bound or any judgment, decree or order applicable to Shareholder.

(d) No Violations. Neither the execution and delivery of this Agreement, nor the performance by Shareholder of its obligations hereunder, will violate in any material respect any provision of law applicable to Shareholder.

(e) Consents; Approvals. Neither the execution, delivery or performance by Shareholder of this Agreement, nor the consummation by it of the obligations and transactions contemplated hereby, requires any consent or approval of, authorization by, exemption from, filing with or notice to any Governmental Entity or any other Person.

(f) Brokers. There is no broker, investment banker, financial advisor, finder or other Person which has been retained by or is authorized to act on behalf of the Shareholder who might be entitled to any fee or commission for which the Company, the Purchasers or the Shareholders will be liable in connection with the execution, delivery or performance by the Shareholder of this Agreement.

(g) Title to Securities. Upon receipt by the Shareholder of the Company’s Class A Common Stock pursuant to the terms of the Recapitalization Agreement, the Shareholder will be the sole record and beneficial owner of, and will have good and valid title to, the securities listed below its name on Schedule 1 hereto, free and clear of any lien, pledge, security interest or any restriction on transfer, except for restrictions imposed by applicable securities laws, the Credit Agreement, the Fourth Amended and Restated Shareholders Agreement, dated as of January 18, 2002, by and among the Company and the Company’s security holders identified therein and the Third Amended and Restated Co Sale Agreement, dated as of January 18, 2002, by and among the Company and the shareholders party thereto. The Shareholder is not a party to any option,

6

warrant, purchase right or other contract or commitment with respect to, in each case, the Shares, that (x) will not be terminated at the Closing and (y) requires the Shareholder to sell, transfer or otherwise dispose of any capital stock of the Company.

5. Company Representations and Warranties.

The Company hereby represents and warrants to each Purchaser and each Shareholder as follows:

(a) Organization. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Texas and has all requisite corporate power and authority for the ownership and operation of its properties and for the carrying on of its business as now conducted and as now proposed to be conducted. The Company is duly licensed or qualified and in good standing as a foreign corporation authorized to do business in all jurisdictions wherein the character of the property owned or leased, or the nature of the activities conducted, by it makes such licensing or qualification necessary, except where the failure to be so licensed or qualified, either individually or in the aggregate, would not have (or be reasonably likely to have) a material adverse effect on the business, assets, liabilities, condition (financial or otherwise) or results of operations of the Company or the Company’s ability to perform its obligations under this Agreement. The Company does not own, directly or indirectly, any capital stock or other equity or ownership or proprietary interest in any Person.

(b) Authorization; Enforcement. The Company has all requisite power and authority to authorize, execute, deliver and perform each Transaction Document. The execution, delivery and performance by the Company of each Transaction Document, and the consummation by the Company of the transactions contemplated thereby, have been duly authorized by all necessary corporate action on the part of the Company and no further consent or authorization therefore is presently required by the Company. The Transaction Documents have been duly and validly executed and delivered by the Company and, assuming the due authorization, execution and delivery by the other parties hereto, constitute the valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, except to the extent that the enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws generally affecting creditors’ rights and by equitable principles regardless of whether enforcement is sought in equity or at law.

(c) Duly Authorized, Fully Paid and Non-assessable; No Violation of Preemptive Rights. The Shares are duly authorized, validly issued, fully paid and non-assessable, and were not issued in violation of any preemptive rights or any federal or state securities laws.

(d) No Conflicts. The execution and delivery of each Transaction Document by the Company do not, and the performance by the Company of its obligations thereunder will not, constitute a violation of, conflict with or result in a default under (i) the articles of incorporation of the Company as in effect on the date hereof or as amended and restated at the Closing, substantially in the form attached hereto as Exhibit D (the “Amended and Restated Articles of Incorporation”), or the bylaws of the Company or (ii) in any material respect, any contract to which the Company is a party or by which the Company is bound or any judgment, decree or order applicable to the Company.

7

(e) No Violations. Neither the execution and delivery of the Transaction Documents nor the performance by the Company of its obligations thereunder will violate in any material respect any provision of law applicable to the Company.

(f) Consents; Approvals. Neither the execution, delivery or performance by the Company of any Transaction Document nor the consummation by it of the obligations and transactions contemplated thereby, requires any consent or approval of, authorization by, exemption from, filing with or notice to any Governmental Entity or any other Person other than (i) the filing of the Amended and Restated Articles of Incorporation with the Secretary of State of the State of Texas and (ii) the consent of the lenders required under the Credit Agreement.

(g) Brokers. There is no broker, investment banker, financial advisor, finder or other Person which has been retained by or is authorized to act on behalf of the Company who might be entitled to any fee or commission for which the Company, the Purchasers or the Shareholders will be liable in connection with the execution, delivery or performance by the Company of this Agreement.

(h) Financial Statements. The Company has delivered to the Purchasers true, complete and correct copies of (i) the audited balance sheet of the Company as of June 30, 2003, the related audited statements of income, cash flows and stockholders’ equity of the Company for the fiscal year ended June 30, 2003 and the related notes thereto, accompanied by a true and correct copy of the report thereon of Ernst & Young LLP, independent public accountants, and (ii) the unaudited balance sheet of the Company as of March 31, 2004 (the “Balance Sheet”), together with the related unaudited income statement and cash flow statement of the Company for the nine months ended March 31, 2004 (such audited and unaudited financial statements collectively being referred to herein as the “Financial Statements”), prepared on a basis, and using principles, consistent with the preparation of the audited Financial Statements. The Financial Statements, together with the notes thereto, have been prepared in accordance with Generally Accepted Accounting Principles (“GAAP”) (except that the unaudited Financial Statements do not contain all footnotes required under GAAP and are subject to normal year-end adjustments, none of which are, individually or in the aggregate, material) applied on a consistent basis throughout the periods covered thereby (except to the extent disclosed therein or required by changes in GAAP) and fairly present in all material respects the financial condition and the results of operations of the Company as of the respective dates thereof and for the respective periods covered thereby.

(i) Title to Properties and Assets. The Company has the full corporate power to own or lease its assets and to carry on its businesses as presently conducted. The Company has good and valid title to its properties, leaseholds and assets, including the properties, leaseholds and assets reflected in the Financial Statements, except as would not have a Material Adverse Effect. For purposes of this Agreement, “Material Adverse Effect” shall mean a material adverse effect upon the financial condition, operating results, assets, customer or supplier relations, employee relations or business prospects of the Company taken as a whole.

(j) Litigation. Except as set forth on Schedule 5(j) hereto, there are no actions, suits, claims, investigations or legal, administrative or arbitration proceedings pending or, to the Company’s knowledge, threatened against or affecting the Company or any of its assets,

8

properties, business, operations or prospects which if the subject of an unfavorable decision, ruling or finding would have a Material Adverse Effect, nor any which question the validity of this Agreement or any action taken or to be taken in connection herewith.

(k) Taxes. The Company has filed all necessary federal, state and municipal property, income and franchise tax returns and has paid all taxes shown as due thereon or otherwise owed by them to any taxing authority except those contested in good faith and for which appropriate amounts have been reserved in accordance with GAAP except as would not have a Material Adverse Effect; and there is no tax deficiency which has been asserted against the Company which would have a Material Adverse Effect.

(l) Compliance with ERISA. The Company and each ERISA Affiliate (as hereinafter defined) have operated and administered each Plan (as hereinafter defined) in material compliance with all applicable laws. Neither the Company nor any ERISA Affiliate has incurred any liability pursuant to Title I or IV of ERISA (as hereinafter defined) or the penalty or excise tax provisions of the Internal Revenue Code of 1986, as amended (the “Code”) relating to employee benefits plans (as defined in Section 3 of ERISA), and no event, transaction or condition has occurred or exists that would reasonably be expected to result in the incurrence of any such liability by the Company or any ERISA Affiliate, or in the imposition of any lien on any of the rights, properties or assets of the Company or any ERISA Affiliate, in either case pursuant to Title I or IV of ERISA or to such penalty or excise tax provisions or to Section 401(a)(29) or 412 of the Code, other than such liabilities or liens as would not, individually or in the aggregate, have a Material Adverse Effect. “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect. “ERISA Affiliate” shall mean any trade or business (whether or not incorporated) that is treated as a single employer together with the Company under Section 414 of the Code. “Plan” shall mean an “employee benefit plan” (as defined in Section 3(3) of ERISA) that is or, within the preceding five years, has been established or maintained, or to which contributions are or, within the preceding five years, have been made or required to be made, by the Company or any ERISA Affiliate or with respect to which the Company or any ERISA Affiliate may have any liability.

(m) Insurance. All of the properties, assets and operations of the Company of a character usually insured by Persons of established reputation engaged in the same or similar businesses similarly situated are adequately insured, by financially sound and reputable insurers, against loss, damage or liability except where the failure to be so insured would not have a Material Adverse Effect.

(n) Foreign Asset Control Regulations. The Company is not, nor will it become, a Person described or designated in the Specially Designated Nationals and Blocked Persons List of the Office of Foreign Assets Control or Executive Order No. 13244 of September 23, 2001, Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism, 66 Fed. Reg. 49, 079 (2001), as amended, and, to its knowledge, the Company does not engage nor will it engage in any dealings or transactions, or become otherwise associated, with any such Persons.

9

(o) Status Under Certain Statutes. The Company is not subject to regulation under the Investment Company Act of 1940, as amended, the Public Utility Holding Company Act of 1935, as amended, the Interstate Commerce Act, as amended, or the Federal Power Act, as amended.

(p) No Other Conversion, Preemptive Rights. After the Closing Date, except for (i) the warrants issued to Heller Financial, Inc., a Delaware corporation (“Heller”), pursuant to the Warrant Agreement, dated as of November 10, 1994, by and between the Company and Heller, as amended, (ii) the warrants issued to The Northwestern Mutual Life Insurance Company (“NML”) pursuant to the Warrant Agreement, dated as of January 18, 2002, by and between the Company and NML, (iii) the new Series A Preferred Stock, $0.01 par value, to be issued in the Recapitalization and (iv) options to purchase 92,000 shares of Class A Common Stock, $0.01 par value (the “Common Stock”), issued pursuant to the Company’s 1999 Stock Option Plan, there will be no securities outstanding that are convertible or exchangeable for the Company’s Common Stock, and there will be no other options, warrants, conversion privileges or other rights (including preemptive rights and rights of first refusal or similar rights other than as described in the Shareholders Agreement) outstanding to purchase any of the authorized but unissued stock of the Company.

(q) Disclosure. The registration statements, forms and other documents required to be filed by the Company with the Securities and Exchange Commission (collectively, including all exhibits thereto, the “Company SEC Reports”) did not at the time they were filed (or if amended or superceded by a filing prior to the date of this Agreement, then as and on the date so amended or superceded) contain any untrue statement of a material fact or omit a material fact necessary, in light of the circumstances under which they were made, not misleading.

(r) Undisclosed Liabilities.

(i) Since the date of the Balance Sheet, the business of the Company has been conducted in the ordinary course in all material respects, there has been no Material Adverse Effect, and no events have occurred which are reasonably likely to result in a Material Adverse Effect.

(ii) The Company does not have any material obligation or liability which would be required to be accrued on the Company’s balance sheet in accordance with GAAP, except (A) obligations under contracts and commitments entered into in the ordinary course of business which are not required to be disclosed thereon, (B) liabilities reflected in the financial statements of the Company contained in the Company SEC Reports (or the notes thereto), (C) liabilities which have arisen since the date of the Balance Sheet in the ordinary course of business and (D) liabilities which would not have a Material Adverse Effect.

6. Certain Conditions.

(a) The obligation of each Shareholder to consummate the sale of the Shares to each Purchaser shall be subject to the satisfaction or waiver by such Shareholder of the following conditions:

(i) the representations and warranties made by each Purchaser in Section 3 hereof shall be true and correct in all material respects at the Closing Date, and each Purchaser and the Company shall have performed in all material respects all obligations and conditions herein required to have been performed or complied with by it on or prior to the Closing;

10

(ii) each Purchaser shall have made the Closing deliveries as provided in Sections 2(c)(vi)-(viii);

(iii) the Company shall have filed the Amended and Restated Articles of Incorporation with the Secretary of State of the State of Texas, which Amended and Restated Articles of Incorporation shall be in full force and effect on the Closing Date;

(iv) no action, suit, proceeding or investigation by any Governmental Entity shall be pending or, so far as is known to the Company, the Purchasers or the Shareholders, be threatened, and no Governmental Entity shall have enacted an order or injunction which is in effect, which, in the case of such action, suit, proceeding, investigation, order or injunction, challenges the transactions contemplated by the Transaction Documents or seeks to restrain or prevent the consummation of the transactions contemplated thereunder;

(v) the Company shall have obtained any and all consents (including the consent of the lenders required pursuant to the Credit Agreement), permits and waivers necessary or appropriate for consummation of the transactions contemplated by this Agreement and the Recapitalization Documents (as defined in the Recapitalization Agreement) (the “Required Consents”);

(vi) the Recapitalization Documents shall have been executed and delivered by each of the parties thereto; and

(vii) the closing of the transactions contemplated in the Recapitalization Agreement shall have occurred pursuant to the terms thereof.

(b) The obligation of each Purchaser to consummate the purchase of the Shares shall be subject to the satisfaction or waiver by such Purchaser of the following conditions:

(i) the representations and warranties made by the Company in Section 5 hereof shall be true and correct in all material respects at the Closing Date, and the Company shall have performed in all material respects all obligations and conditions herein required to have been performed or complied with by it on or prior to the Closing;

(ii) the representations and warranties made by each Shareholder in Section 4 hereof shall be true and correct in all material respects at the Closing Date, and each Shareholder shall have performed in all material respects all obligations and conditions herein required to have been performed or complied with by it on or prior to the Closing;

(iii) the Company shall have made the Closing deliveries as provided in Section 2(c)(i);

11

(iv) each Shareholder shall have made the Closing deliveries as provided in Sections 2(c)(ii)-(v);

(v) the Company shall have filed the Amended and Restated Articles of Incorporation with the Secretary of State of the State of Texas, which Amended and Restated Articles of Incorporation shall be in full force and effect on the Closing Date;

(vi) no action, suit, proceeding or investigation by any Governmental Entity shall be pending or, so far as is known to the Company, the Purchasers or the Shareholders, be threatened, and no Governmental Entity shall have enacted an order or injunction which is in effect, which, in the case of such action, suit, proceeding, investigation, order or injunction, challenges the transactions contemplated by the Transaction Documents or seeks to restrain or prevent the consummation of the transactions contemplated thereunder;

(vii) the Company shall have obtained any and all Required Consents;

(viii) the Recapitalization Documents shall have been executed and delivered by each of the parties thereto; and

(ix) the closing of the transactions contemplated in the Recapitalization Agreement shall have occurred pursuant to the terms thereof.

7. Specific Performance.

The parties hereto acknowledge and agree that in the event of any breach of this Agreement, the other parties hereto would be irreparably and immediately harmed and could not be made whole by monetary damages. It is accordingly agreed that, in addition to any other remedy to which the parties hereto may be entitled at law or in equity, each of the parties hereto shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement and/or to compel specific performance of this Agreement in any action.

8. Expenses.

The Company will pay all fees and expenses of the parties hereto incurred in connection with the negotiation, preparation and execution of the Transaction Documents and in connection with the consummation of the transactions contemplated thereby, including, but not limited to legal fees.

9. Miscellaneous.

(a) Further Assurances. The Company, each Purchaser and each Shareholder shall take or cause to be taken all such actions as may be necessary or reasonably desirable in order expeditiously to consummate the transactions contemplated by the Transaction Documents, including, without limitation, executing, acknowledging and delivering consents, assignments, waivers and other documents or instruments; voting in favor of such transaction; furnishing information and copies of documents; filing applications, reports, returns, filings and other

12

documents or instruments with Governmental Entities; and otherwise cooperating with the Company.

(b) Entire Agreement. This Agreement, including all exhibits and schedules hereto, and the Recapitalization Documents constitute the entire agreement and supersede all prior agreements and understandings, whether oral or written, between the parties hereto with respect to the subject matter hereof and thereof.

(c) Representations and Warranties. None of the parties has made nor is making any representation, warranty, covenant or agreement, express or implied, other than the explicit representations, warranties, covenants and agreements set forth herein. No promise or inducement for this Agreement has been made to any party hereto except as set forth herein. This Agreement is being executed by each party freely and voluntarily, and without reliance upon any statement or representation by any other party, any of such other party’s affiliates or any of their attorneys or agents except as set forth herein. Each party acknowledges and agrees that it is legally competent to enter into this Agreement and accepts full responsibility therefor and has been represented by counsel in the course of the negotiation of this Agreement.

(d) Survival of Representations and Warranties. All agreements, representations and warranties contained herein shall survive the execution and delivery of this Agreement and the Closing, regardless of any investigation by the Purchasers or on behalf of the Purchasers.

(e) Successors and Assigns; Assignment. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, successors and permitted assigns. This Agreement may not be assigned by any party hereto without the prior written consent of the other parties hereto.

(f) Section Headings. Section headings contained in this Agreement are for convenience of reference only and shall not affect the meaning or interpretation of this Agreement.

(g) Counterparts. This Agreement may be executed in any number of counterparts, each of which shall, when executed, be deemed to be an original and all of which shall be deemed to be one and the same instrument.

(h) Governing Law. This agreement shall be governed by and construed and enforced in accordance with the laws of the state of Texas, without reference to the conflict of laws principles thereof.

13

(i) Notices. All notices, requests, demands and other communications provided for hereunder shall be in writing and mailed (by first class registered or certified mail, postage prepaid), telegraphed, sent by express overnight courier service or electronic facsimile transmission with a copy by mail, or delivered to the applicable party at the addresses indicated below:

If to the Company:

Monitronics International, Inc.

12801 Stemmons Freeway

Suite 821

Dallas, Texas 75234

Attention: James R. Hull

Facsimile No.: (972) 919-1985

(with copies to):

Vinson & Elkins L.L.P.

2001 Ross Avenue

Suite 3700

Dallas, Texas 75201

Attention: Christine A. Hathaway

Facsimile No.: (214) 999-7714

If to a Purchaser:

To the address of such Purchaser

set forth on the signature page hereof

If to a Shareholder:

To the address of such Shareholder

set forth on the signature page hereof

or, as to each of the foregoing, at such other address as shall be designated by such Person in a written notice to the other party complying as to delivery with the terms of this Section. All such notices or requests, demands and other communications shall, when mailed, telegraphed or sent, respectively, be effective (i) two days after being deposited in the mail or (ii) one day after being delivered to the telegraph company, deposited with the express overnight courier service or sent by electronic facsimile transmission (with receipt confirmed), respectively, addressed as aforesaid.

(j) Waiver. Any waiver by any party of a breach of any provision of this Agreement shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Agreement. The failure of a party to insist upon strict adherence to any term of this Agreement or one or more sections shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement.

(k) Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable,

14

the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated.

[The remainder of this page is intentionally left blank.]

15

IN WITNESS WHEREOF, the parties hereto have hereunto set their hands as of the date first above written.

COMPANY:
MONITRONICS INTERNATIONAL, INC.
By:	/s/ James R. Hull
Name:	James R. Hull
Title:	President and CEO

S-1

PURCHASER:
NEW YORK LIFE CAPITAL PARTNERS II, L.P.
By:	NYLCAP Manager LLC, its Investment Manager
By:	/s/ John E. Schumacher
Name:	John E. Schumacher
Title:	President and CEO
Address:
51 Madison Avenue
Suite 3009 (30th Floor)
New York, New York 10010
Fax: 212-576-5591
Attn: John Schumacher
with a copy to:
New York Life Investment Management LLC
51 Madison Avenue, Room 1104
New York, New York 10010
Fax: 212-576-8340
Attn: Office of General Counsel

S-2

PURCHASER:
PPM AMERICA PRIVATE EQUITY FUND LP
By:	PPM America Capital Partners, LLC, its general partner
By:	/s/ Bruce Saewitz
Name:	Bruce Saewitz
Title:	Senior Partner
By:	/s/ Austin Krumpfes
Name:	Austin Krumpfes
Title:	Associate
Address:
PPM America Private Equity Fund LP
c/o PPM America Capital Partners, LLC
225 W. Wacker Drive
Suite 1200
Chicago, Illinois 60606
Fax: 312-634-0044
Attn: Bruce Saewitz

S-3

SHAREHOLDER:
WINDWARD CAPITAL PARTNERS II, L.P.
By:	Windward Capital GP II, LLC, its general partner
By:	/s/ Peter Scott Macdonald
Name:	Peter Scott Macdonald
Title:	Managing Member
Address:
Windward Capital Partners II, L.P.
712 Fifth Avenue
21st Floor
New York, New York 10019
Fax: 212-382-6534
Attn: Peter Macdonald

S-4

SHAREHOLDER:
WINDWARD CAPITAL LP II, LLC
By:	/s/ Peter Scott Macdonald
Name:	Peter Scott Macdonald
Title:	Managing Member
Address:
Windward Capital Partners II, L.P.
712 Fifth Avenue
21st Floor
New York, New York 10019
Fax: 212-382-6534
Attn: Peter Macdonald

S-5

SCHEDULE 1

Purchaser	Number of Shares Purchased from Windward Capital Partners II, L.P.	Number of Shares Purchased from Windward Capital LP II, LLC
New York Life Capital Partners II, L.P.	4,740,600	259,400
PPM America Private Equity Fund LP	3,160,400	172,933

Schedule 1-1

SCHEDULE 5(j)

At various times in the past the Company has received the following subpoenas or inquiries for information from the listed state attorney general offices:

1. Texas In October 2003, the Company received an informal request for a meeting pursuant to the investigatory powers of the attorney general under the Deceptive Trade Practices Act regarding enforcement of renewal provisions in alarm monitoring agreements and disclosures relating to same. This request for a meeting was abandoned on December 15, 2003. The Company was informed that a subpoena will be issued if the attorney general is interested in further discussions. Counsel for the Company anticipates no further contact on this matter.

2. West Virginia In the summer of 2004, a subpoena was issued and served on the Company to which the Company responded and objected in part. In lieu of contesting the validity of the issuance and scope of the subpoena, the attorney general and the Company agreed that the Company would produce certain limited documentation related to sales materials, relationships with dealers, and contracts used by the Company and others. Counsel for the Company has informed the Company that he cannot assess the likelihood of further contact on this matter.

3. Kansas In December 2003, a subpoena for certain documents, primarily related to renewal clause issues, was issued and served on the Company. The Company responded and objected in part to the subpoena. There has been no contact since the Company’s response/objections were provided, and Counsel for the Company anticipates no further contact on this matter.

4. Washington In the spring and summer of 2004, the Company received an informal inquiry relating to renewal clause issues. In response to such inquiry, the Company advised the attorney general that it was committed to non-enforcement of renewal clauses per a new corporate policy. Counsel for the Company has informed the Company that he cannot assess the likelihood of further contact on this matter.

5. Wisconsin In the early fall of 2003, the Company received an informal inquiry from the attorney general. In response to such inquiry, the Company committed itself to speed up response time to consumer complaint inquiries from the attorney general’s office, to generally augment/improve procedures for resolving customer complaints, and to generally augment/improve procedures to notify customers of the Company’s purchase/transfer of such customer’s monitoring account. Counsel for the Company anticipates no further contact on this matter.

Schedule 5(j) - 1

EXHIBIT A

Capitalization Prior to the Closing

Shareholder	Class of Shares	# of Shares	# of Fully Diluted Common Shares on an “As Converted” Basis	Fully Diluted Ownership Percentage
Austin Ventures III-A, L.P.	Series A Preferred	2,168,400	2,713,213	17.181	%
	Class A Common	33,344	33,344	0.211	%
Austin Ventures III-B, L.P.	Series A Preferred	1,831,600	2,291,792	14.513	%
	Class A Common	28,167	28,167	0.178	%
Austin Ventures V, L.P.	Series B Preferred	3,809,525	—	—
Austin Ventures V Affiliates Fund, L.P.	Series B Preferred	190,476	—	—
Capital Resource Lenders II, L.P.	Series B Preferred	1,000,000	—	—
	Series C Preferred	76,182	126,332	0.800	%
	Series C-1 Preferred	13,590	—	—
	Series D-1 Preferred	5,000	238,328	1.509	%
	Class A Common	688,625	688,625	4.361	%
Windward Capital Partners II, L.P.	Series C Preferred	1,264,031	2,096,116	13.274	%
	Series C-1 Preferred	225,492	—	—
Windward Capital LP II, LLC	Series C Preferred	69,162	114,690	0.726	%
	Series C-1 Preferred	12,338	—	—
ABRY Partners IV, L.P.	Series D-1 Preferred	64,959.90	3,096,356	19.608	%
ABRY Investment Partnership, L.P.	Series D-1 Preferred	40.10	1,912	0.012	%
Hull Family Limited Partnership	Class A Common	536,218	536,218	3.396	%
Other Management	Class A Common	651,000	651,000	4.122	%
Other Holders	Class A Common	321,101	321,101	2.034	%
Warrant Shares
Austin Ventures V, L.P.	Class A Common	732,724	961,327	6.088	%
Austin Ventures V Affiliates Fund, L.P.	Class A Common	36,636	48,066	0.304	%
Capital Resource Lenders II, L.P.	Class A Common	192,340	252,348	1.598	%
Northwestern Mutual Life Insurance Company	Class A Common	1,133,328	1,133,328	7.177	%
General Electric Capital Corporation	Class B Common	367,238	367,238	2.326	%
Options
Management	Class A Common	92,000	92,000	0.583	%
				100.000	%

A-1

EXHIBIT B

Capitalization After the Closing

Shareholder	Class of Shares	# of Shares	Fully Diluted Ownership Percentage
Austin Ventures III-A, L.P.	Series A Preferred	3,353,621	8.5
Austin Ventures III-B, L.P.	Series A Preferred	2,832,733	7.2
Austin Ventures V, L.P.	Series A Preferred	1,905,449	4.8
Austin Ventures V Affiliates Fund, L.P.	Series A Preferred	95,272	.2
ABRY Partners IV, L.P.	Class A Common	17,121,419	43.2
ABRY Investment Partnership, L.P.	Class A Common	10,570	—
Capital Resource Lenders II, L.P.	Class A Common	2,964,585	7.8
New York Life Capital Partners II, L.P.	Class A Common	5,000,000	12.6
PPM America Private Equity Fund L.P.	Class A Common	3,333,333	8.4
Hull Family Limited Partnership	Class A Common	536,218	1.4
Other Management	Class A Common	651,000	1.6
Other Holders	Class A Common	321,101	0.8
General Electric Capital Corporation	Class B Common (1)	366,626	0.9
		38,491,927
Warrant Shares
Northwestern Mutual Life Insurance Company	Class A Common	1,133,328	2.9
		39,625,255	100.0	%
Options
Management (2)	Class A Common	92,000

⁽¹⁾ The Class B Common is non-voting and convertible into an equal number of shares of Class A Common at the option of the holder. Assumes the exercise of the warrant originally held by Heller Financial, Inc. on a cashless exercise basis following the closing of the Recapitalization.

⁽²⁾ All of the management stock options are currently exercisable. Of these options, 25,000 have an exercise price of $1.00 per share and 67,000 have an exercise price of $20.00 per share.

B-1

EXHIBIT C

Form of Opinion of Counsel to the Company

1. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Texas and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted. To our knowledge, after due inquiry, the Company does not own, directly or indirectly, any capital stock or other equity interest in any Person.

2. The Company has all requisite corporate power and authority to execute and deliver the Transaction Documents to which it is a party and to perform its obligations under the Transaction Documents to which it is a party.

3. The execution, delivery and performance by the Company of the Transaction Documents to which it is a party, and the consummation by the Company of the transactions contemplated thereby to be performed by it, have been duly authorized by all necessary corporate action on the part of the Company. The issuance of the Shares by the Company to the Shareholders in the Recapitalization is not subject to preemptive or other similar statutory or contractual rights arising pursuant to any agreement or instrument, known to us after due inquiry, to which the Company is a party.

4. Each Transaction Document to which the Company is a party has been duly and validly executed and delivered by the Company and each of the Transaction Documents constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its respective terms, but only to the extent of its respective obligations thereunder and subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws now or hereafter in effect affecting creditor’s rights and remedies generally, and to general principles of equity, including, to the extent applicable, principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity) and except to the extent that rights to indemnification and contribution thereunder may be limited by federal or state securities laws or public policy, and subject to the qualification that we express no opinion as to the enforceability of provisions purporting to waive the right to trial by jury.

5. The execution and delivery of the Transaction Documents by the Company, the consummation by the Company of the transactions contemplated thereby, and the compliance by the Company with the provisions thereof pertaining to the Company will not violate any of the terms, conditions or provisions of the Amended Articles or bylaws of the Company, or conflict with, constitute a default under, or violate (i) any of the terms, conditions or provisions of any document, agreement or other instrument filed as an exhibit to the Company’s Registration Statement on Form S-4 (File No. 333-110025) filed with the Securities and Exchange Commission (the “SEC”) on October 10, 2003, Amendment No. 1 to Form S-4 filed with the SEC on January 15, 2004 and Amendment No. 2 to Form S-4 filed with the SEC on May 28, 2004, (ii) any Texas or federal law or regulation (other than federal and state securities laws, as

C-1

to which we express no opinion in this paragraph) or (iii) any judgment, writ, injunction, decree, order or ruling of any court or governmental authority binding on the Company of which we are aware after due inquiry.

6. The Amended Articles have been duly adopted in accordance with the Texas Business Corporation Act, have been duly executed and filed with the Secretary of State of the State of Texas and have become effective in accordance with the provisions of the Texas Business Corporation Act.

7. No consent, approval, waiver, license or authorization, or other action by or filing with any Texas or federal governmental authority is required to be made by the Company in connection with the execution, delivery and performance by the Company of the Transaction Documents to which it is a party, the consummation by the Company of the transactions contemplated thereby to be performed by the Company, or compliance by the Company with the provisions thereof pertaining to the Company, except (i) such as may be required by the securities or Blue Sky laws of any state in connection with the offer and sale of the Shares, as to which we express no opinion, (ii) the registrations and filings required to be performed pursuant to the provisions of the Registration Agreement and (iii) those consents, approvals, waivers, licenses, authorizations, actions and filings that have been obtained or made.

8. To our knowledge, there is no litigation, proceeding or governmental investigation pending or threatened against the Company, which (i) calls into question the validity of the Transaction Documents or any action taken or to be taken pursuant thereto or (ii) seeks to prevent the consummation of the transactions contemplated by the Transaction Documents.

9. As of the date hereof, immediately after the consummation of the Recapitalization, the authorized capital stock of the Company consists of 80,000,000 shares of Class A Common Stock, $0.01 par value per share (“Class A Stock”), 700,000 shares of Class B Common Stock, $0.01 par value per share (“Class B Stock”), and 8,247,075 shares of Series A Preferred Stock, $0.01 par value per share (“New Series A Preferred Stock”). As of the date hereof, immediately after the consummation of the Recapitalization, the Company has outstanding (i) 29,938,226 shares of Class A Stock, (ii) no shares of Class B Stock and (iii) 8,187,075 shares of New Series A Preferred Stock. All of such outstanding shares of capital stock of the Company are duly authorized, validly issued, fully paid and nonassessable, and all shares of Class A Stock issuable upon conversion of the New Series A Preferred Stock will be, when issued upon conversion of the New Series A Preferred Stock in accordance with the terms thereof, duly authorized, validly issued, fully paid and nonassessable. To our knowledge, as of the date hereof and immediately after the consummation of the Recapitalization, (i) there are no outstanding securities of the Company convertible into, exchangeable for or evidencing the right to purchase or subscribe for any shares of capital stock of the Company, other than the New Series A Preferred Stock, and (ii) there are no outstanding or authorized options, warrants, calls, subscriptions, rights, conversion privileges, commitments or other agreements or rights of any character obligating the Company to issue any shares of capital stock or any securities convertible into or evidencing the right to purchase or subscribe for any shares of such capital stock other than (a) the warrants issued to The Northwestern Mutual Life Insurance Company pursuant to the terms of the Common Stock Purchase Warrant, dated January 18, 2002, (b) the

C-2

warrants issued to Heller Financial, Inc., a Delaware corporation (“Heller”), pursuant to the terms of the Warrant Agreement, dated as of November 10, 1994, by and between the Company and Heller, as amended (the “Heller Warrant Agreement”), (c) options to purchase 92,000 shares of Class A Stock issued pursuant to the Company’s 1999 Stock Option Plan and (d) the preemptive rights and rights of first refusal set forth in the Shareholders Agreement. As of the date hereof and immediately after the consummation of the Recapitalization, except as set forth in the Shareholders Agreement, the Heller Warrant Agreement and the Take Along/Drag-Along Rights Agreement, dated November 10, 1994, between Austin Ventures III-A, L.P., Austin Ventures III-B, L.P. and Heller, to our knowledge, there are no restrictions on the transfer of shares of capital stock of the Company other than those imposed by relevant state and federal securities laws. As of the date hereof and immediately after the consummation of the Recapitalization, except as set forth in the Shareholders Agreement, no holder of any security of the Company is entitled to preemptive or similar statutory or contractual rights, either arising pursuant to any statute or, to our knowledge after due inquiry, any agreement or instrument, to which the Company is a party or which are otherwise binding upon the Company.

10. Assuming the accuracy of the representations and warranties of the Company and the Shareholders in the Recapitalization Agreement and the performance by the Company of the agreements contained in the Recapitalization Agreement, it is not necessary in connection with the offer, issuance and delivery of the Shares by the Company to the Shareholders pursuant to the Recapitalization Agreement to register the Shares under the Securities Act of 1933, as amended.

11. The Company is not an “investment company” or a company “controlled” by an “investment company” within the meaning of the Investment Company Act of 1940, as amended.

C-3

EXHIBIT D

Form of Amended and Restated Articles of Incorporation

D-1

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the reference to our firm under the caption “Experts” and to the inclusion of our reports dated August 25, 2003, except for restatement as discussed in Note 1, as to which the date is May 14, 2004 in Amendment No. 3 to the Registration Statement (Form S-4 No. 333-110025) and related Prospectus of Monitronics International, Inc. for the registration of $160,000,000 of 11 3/4% Senior Subordinated Notes.

/s/ Ernst & Young LLP

Fort Worth, Texas

July 26, 2004

EX-24.2

EXHIBIT 24.2

POWER OF ATTORNEY

The undersigned authorizes and appoints James R. Hull and Michael R. Meyers, each of them severally, acting alone and without the other, as his attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including pre- and post-effective amendments) to this Registration Statement, and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them severally, acting alone and without the other, full power and authority to do and perform each and every act and thing requisite or necessary to be done, as fully and for all intents and purposes as he might or could do in person, hereby ratifying and confirming all that each of said attorneys-in-fact and agents or their substitute or substitutes may lawfully do or cause to be done by virtue hereof.

/s/ Erik Brooks                        

Erik Brooks

EX-24.3

EXHIBIT 24.3

POWER OF ATTORNEY

The undersigned authorizes and appoints James R. Hull and Michael R. Meyers, each of them severally, acting alone and without the other, as his attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including pre- and post-effective amendments) to this Registration Statement, and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them severally, acting alone and without the other, full power and authority to do and perform each and every act and thing requisite or necessary to be done, as fully and for all intents and purposes as he might or could do in person, hereby ratifying and confirming all that each of said attorneys-in-fact and agents or their substitute or substitutes may lawfully do or cause to be done by virtue hereof.

/s/Royce Yudkoff                    

Royce Yudkoff

EX-24.4

EXHIBIT 24.4

POWER OF ATTORNEY

The undersigned authorizes and appoints James R. Hull and Michael R. Meyers, each of them severally, acting alone and without the other, as his attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including pre- and post-effective amendments) to this Registration Statement, and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them severally, acting alone and without the other, full power and authority to do and perform each and every act and thing requisite or necessary to be done, as fully and for all intents and purposes as he might or could do in person, hereby ratifying and confirming all that each of said attorneys-in-fact and agents or their substitute or substitutes may lawfully do or cause to be done by virtue hereof.

/s/ Brent Stone                

Brent Stone